LinkedIn Remains Low as Revenues Projected to Slow

Shares of professional social networking site LinkedIn have remained low in price following a major drop at the beginning of February. Shares of the social site dedicated to business professionals have remained low and performed poorly in comparison to those of competitor sites Facebook and Twitter, though the value of LinkedIn shares is still substantially greater than those of Twitter.

Much of the site’s current problems are the result of current global economic conditions. Unlike other social media sites, which earn most of their revenue from advertising sales, LinkedIn makes the majority of its profits directly from users who pay to upgrade profiles and recruiting businesses that pay to be able to contact potential candidates. However, with fewer jobs being created, especially in emerging markets, the growth potential of this model has been subject to extensive questioning.

Following an announcement of lower expected earnings by CFO Steven Sordello in February, shares of LinkedIn (NYSE: LNKD) dropped from $192.28 to $108.38 in a single day of trading. Since then, the shares have remained more stable, but have failed to make up any of the lost ground amid concerns that a long-term economic slump could stunt the growth of the social media company for several years beyond 2016. At present, share of LinkedIn trade at $111.02. Financial analysts now warn that the road to recovery for LinkedIn could be long and slow.

In response to these challenges, LinkedIn has outlined a new business strategy that focuses on convincing existing customers to turn to its platform with a larger share of their recruitment needs, rather than putting the focus on acquiring new customers. This strategy is expected to create more recurring revenue, albeit from a smaller base of business customers. The plan to leverage an existing customer base more effectively, however, may not be enough, as advertising revenues, which account currently for about 20 percent of LinkedIn’s total net revenue, are also projected to slow over the course of the next year. Given the current expectations that have been set for 2016 by the social media company, many analysts currently expect the company to continue to experience lower revenues until the global job market picks up.