LinkedIn Expands Base in China - Analyst Blog

LinkedIn's LNKD strategic launch of the Chinese language website tasted early success with memberships surpassing 5 million in the country. As reported by Forbes, membership count in China rose approximately 1 million since LinkedIn's official launch of the new website in simplified Chinese in February this year.

China, being the world's most populated country, with a population of over 1.35 billion, remains LinkedIn's focal point for its international expansionary initiatives.

The launch of this website is a strategic step to enable 140 million Chinese professionals to create, manage and share their professional identities over the Internet. It will also help them to exchange ideas and insights about different professions and companies, and search business opportunities.

Undoubtedly, the huge Internet population (approximately 513 million) of the country coupled with the absence of Facebook FB and Twitter TWTR, so far, has provided LinkedIn an opportunity to expand its member base with relative ease. Both these companies are banned in China due to censorship issues.

However, the Chinese government is expected to allow social media companies such as Facebook and Twitter, and other foreign websites such as The New York Times NYT to operate within the newly-developed Shanghai Free Trade Zone. Therefore, only people within this 17-square mile area will be able to access these websites.

Therefore, LinkedIn has the first mover's advantage in China. It also has another inherent advantage in its status as a professional networking site that improves Chinese professionals' scope of getting international jobs.

LinkedIn remains a pioneer and leader in the professional networking space with a wide industry reach that enables it to explore and tap into every opportunity to connect the global workforce. The company has a total membership count of 300 million globally.

Buoyed by its strong membership growth, the company reported strong top-line numbers (up 45.7% year over year) in the first quarter of 2014. Nonetheless, the bottom line remained sluggish due to investments related to the Chinese website launch, product development for the Marketing Solutions segment, a mobile publishing platform and for infrastructure development in general.  

Though impacting LinkedIn's operational performance in the short run, these investments are necessary for member growth and user engagement over the long term. In our view, investors should not read much into the bottom-line miss and instead be encouraged by the nearly 45% to 50% top-line growth recorded in the past few quarters.

Currently, LinkedIn has a Zacks Rank #3 (Hold).