Shares of LinkedIn Corporation (LNKD) increased 3.62% on Monday following the news that the professional networking company has launched a Chinese language website to expand its presence in the country. This new website in simplified Chinese is expected to connect Chinese professionals, thereby expanding the company’s user base in the leading Internet market.
China is the world's most populated country, with a population of over 1.35 billion. The launch of this website will help Chinese consumers and experts to create, manage and share their professional identities over the Internet. It will also help to exchange ideas and insight about different professions and companies, and search business opportunities.
Currently, LinkedIn has approximately 4.0 million users in China and around 184.0 million users in other countries outside the U.S. Moreover, LinkedIn has always been permitted to function in China because it agreed to abide by censorship rules in the country. In contrast, rivals Facebook (FB) and Twitter (TWTR) have not really gained that much because censorship would reduce their effectiveness.
Facebook and Twitter were banned in mainland China in 2009. The Chinese government also blocked access to Google’s (GOOG) YouTube in 2009. Facing prolonged censorship, Google finally decided to leave mainland China in Mar 2010.
China is a big market and the huge Internet population (513 million) of the country means big business for all social media companies. LinkedIn offers a platform for professionals to expand their network in the virtual world. Considering the growth potential in the country and the size of its population, it makes great sense for LinkedIn to do as the government requires.
LinkedIn’s revenues from the Americas (68.0% of total revenue) increased 44.9% on a year-over-year basis in the fourth-quarter of 2013. Revenues from the Europe, Middle East & Africa (24.0% of total revenue) region grew 54.9%, while the Asia-Pacific (8.0% of total revenue) grew 54.6% on a year-over-year basis. Thus, expanding its reach in China will help the company to diversify its revenue base.
We believe that LinkedIn’s traction in the mobile segment is also encouraging. Synergies from its acquisitions are also expected to positively impact results in the long run. However, the company is expected to continue its investments in the near term, which might impact its profitability.
Moreover, we believe that LinkedIn’s rapid growth and new product rollouts could lead to poorer service levels.
Currently, LinkedIn has a Zacks Rank #4 (Sell).
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