Portfolio X-Ray: LinkedIn

As I mentioned in the preview, this will be the first post as I take a look deeper inside my portfolio. Based on allocation, LinkedIn (Nasdaq: LNKD) is my current largest holding, partly because of its performance since purchased it, and partly because the stock price is so high. Though I try not to base my investment decisions on share price, it often factors into my decision making process if a stock is priced too high, it might be difficult to purchase when you are working with limited funds.

For example, companies like Google (Nasdaq: GOOG) or priceline.com (Nasdaq: PCLN) currently have share prices close to $900. If you are working with a $10,000 portfolio, and purchase even one share of these companies, they would immediately make up 9% of the portfolio, which could impact the ability to diversify beyond that holding. So while the price of the individual shares shouldn’t dissuade from purchasing a stock, it should factor when building an overall portfolio. Besides, the high prices of these two stocks haven’t prevented strong performance from them, as folks with real money can afford to purchase them without problems.

About LinkedIn
According to the company’s most recent 10-Q filing, the company:

“operates an online professional network on the internet through which the company’s members are able to create, manage, and share their professional identities online, build and engage with their professional networks, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful. The company believes it is the most extensive, accurate and accessible network focused on professionals.”

The company was founded in December 2002, and went public in May 2011. At the end of the last quarter, the web site boasts 238.1 million registered members in over 200 countries.

Why I Invested
The company is often compared to Facebook (Nasdaq: FB), except more focused on the professional lives of its customers. I would agree, but there are other subtle differences between the companies.

The primary reason that I chose to invest in LinkedIn instead of Facebook, at least at this point, is because of the multiple revenue streams at LinkedIn. While Facebook makes the majority of its revenue from advertising, LinkedIn has three distinct revenue streams: Talent Solutions, Marketing Solutions, and Premium Subscriptions.

Talent Solutions, which makes up 56% of all revenue, includes revenues from job postings and other recruiting services that the company provides. As opposed to other job boards, LinkedIn allows for “passive” job searching, allowing users to upload profiles and be “recruited” by the companies on the site. As more companies move to LinkedIn as a recruiting platform, this revenue can only continue to increase. In fact, revenue from Talent Solutions in the most recent quarter increased by 69% from the same quarter in 2012.

The other two streams have also been growing, with Premium Subscriptions also seeing a growth of 68% over the same period. Though I don’t expect growth at the same rate forever, LinkedIn is in position to benefit as more people get back to work as the economy continues to improve.

When I Would Sell
Though I consider myself a long-term buy-and-hold investor, it does not mean that I cannot sell my holdings if needed. Currently, LinkedIn makes up about 19% of my portfolio, which is a bit too much for my taste, especially since I only own only 10 companies. I plan on reducing my holding within the next few weeks, but it will still be the largest position in my portfolio.

Beyond that, should revenue growth dramatically slow or even start to decrease, it would make sense to sell my remaining shares. I plan on keeping a close eye on the company over the next few years, especially when it releases quarterly and annual results. In the meantime, I’ll happily keep an eye on the performance of the company and hope that it continues on with its current 30% return.

Until next time…