LinkedIn Corporation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

What companies from the case would you use as comparable and what key metrics (make sure you explain the metric that you are using) would you choose to do your comparison?

The XINGAG given its pace in the membership per month and also in the revenues generated through the subscription fees earned compared to LinkedIn would be better to compare. The two metrics that were used to compare the two of the companies would be the EBITDA margin and the Net Profit Margin. The EBITDA margin which is the earnings before interest tax depreciation amortization, is seen to be higher for the XINGAG in 2010 (31%) versus LinkedIn’s EBITDA Margin of 20%. This clearly indicates that XINGAG has less operating costs compared to LinkedIn; hence this indicates that LinkedIn has higher operational costs and Xing is better off because of its profitable operations. Further the lower EBITDA Margin of the company seems to indicate that in the near future the company may not be able to pay back its debt obligations.

The net profit margin which is calculated through profits divided by sales is a good metric to use only when the company is generating profits. As we can see that, in 2009 both XINGAG and LinkedIn had losses therefore; there Net Profit Margin is negative and is approximately the same for the two firms. On the contrary, in 2010, the Net Profit Margin of XINGAG is better, which is leading with 13% twice that of the LinkedIn. This clearly shows LinkedIn needs to perform better and needs to control the recurring costs which are decreasing its Net Profit Margin. The interpretation of the numbers can be such that XINGAG is earning $0.13 for each dollar of sales whereas LinkedIn is earning only $0.06 per dollar sales. Further it shows the impact of competition and the pricing structure of the subscription fees too; which are forgone by the LinkedIn Corp.

2. Based on your metrics what price range can you justify for LinkedIn?

The price range that is recommended for LinkedIn Equity lies in $60.50-$70.50 here, the lower end of which indicates highly pessimistic returns and the technological infrastructure shift which might be not coped with while executing the expansion strategy. The higher looped price indicates the optimistic assumptions ultimately giving an average of 66.08 which is the calculated share price with the underlying assumptions. The EBITDA margin therefore should be targeted at a higher percentage and Net Profit Margin at a higher percentage too. For example with respect to these two metrics, the EBIDTA Margin should be 50% and the net profit margin at 45%.

3. What other factors may contribute to LinkedIn’s valuation and what is your assessment of those factors?

Geographical expansion is something that needs to be carried out by an analyst for the valuation of LinkedIn in a better way. This will create goodwill for LinkedIn Corporation and will help it to sustain its position in the market by taking into account the needs of the market. The nature of the business is one that demonstrates creative destruction as any firm can bring up a better version of what LinkedIn or its peers are giving at a comparatively low cost or free of cost. This will add benefit to the firm’s long term goodwill and a better position in the stock market can be preserved. Lastly, LinkedIn Corporation can engage in long term contracts with its subscribers to be in a safer mode as the long term contracts will ensure long term membership with a lump sum amount given before subscription. In this way LinkedIn will be able to lessen the hassle on the consumer for re-subscribing.

The inherent risks that may diminish the firm’s goodwill include the risk of having a short operating history in the market. LinkedIn Corporation is planning to expand and this may fall a side as it may be unsuccessful in that market. In addition, the threat of the local firms that are operating may cause its efforts to become vain. Further, the fluctuation of the results on a quarterly and annual basis is possible due to change in demographics and consumer preferences which may result in a loss for LinkedIn to carry its operations internationally. More importantly the change in pricing strategy from either the two of the firms or LinkedIn Corporation itself will have a heavy impact on the share holder welfare whether it is of XINGAG or VIADED. The budgetary constraints in the market may further deteriorate the usage and the consumer may not feel that this is the right time to recruit, which will make the business of the firms in this industry to vary over seasons............................

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