Analysis of LinkedIn - Research Paper Example

 ANALYSIS OF LINKEDIN Introduction LinkedIn Corporation, is a global social networking company using online platform. I was founded in the year 2003 by Reid Hoofman. The headquarters is in Mountain view, California, United States. It has more four hundred million active members who are professional, through this platform they are able to become productive and successful. Members of this site have access to jobs, professionals, updates and insights that will be beneficial to them. Its income is generated from talent solutions, marketing solutions, and premium subscriptions. Recent developments In the year 2015, LinkedIn acquired the following companies: Careerfly- It acquired this company in March which assist corporation in the hiring process using social media. Refresh-to-This company was acquired in April and it used to give much insights about people in someone’s network prior any interaction or meeting. Lynda.com-The company was acquired in April, it engages in e-learning services. Users are taught about business, creative skills, technology, and software with the aid of videos. Fliptop-It was acquired in August. The firm used to predict sales as well as marketing the firm. All these firms acquired are based in the United States except Careerfly which was a Canadian firm. LinkedIn acquisition plan was strategically planned, it can be noted that the acquired firms engage similar activities as LinkedIn. According to (Harrison, and Charles, 46), firms should consider acquiring a firm that will complement its current activities. This will enhance the efficiency of both firms and the results will be reflected on the financial statements. Annual performance Item 2012 2013 2014 Figures’000 Current asset $ 1,018,797 $ 2,755,470 $ 4,122,100 Total asset $ 1,382,330 $ 3,352,790 $ 5,427,257 Current liabilities $ 110,373 $ 641,991 $ 2,096,438 Total liabilities $ 415,379 $ 718,399 $ 2,096,438 Revenue $ 972,309 $ 1,528,545 $ 2,218,767 Cost of goods $ 125,521 $ 202,910 $ 293,800 Net income $ 125,521 $ 26,769 $ -15,747 Shareholder’s equity $ 908,424 $ 2,629,394 $ 3,325,392 Source . Analysis for LinkedIn annual performance. 2012 2013 2014 Current ratio= current asset/current liabilities 1,018,797/415,379= 2.45 2,755,470/641,991= 4.3 4,122,100/882,785=4.7 Net working capital=Current asset-current liabilities 1,018,797-415,379=603,418 2,755,470-641,991=2,113,479 4,122,100-882,785= 3,239,315 Return on assets (21,610/1,382,330)*100=15.6% (26,769/3,352,790)*100=7.6% (-15,747/5,427,257)*100=-0.3% Equity ratio (908,424/1,382,3300)*100= 66.7% (2,629,394/3,352,790)*100=78.4% (3,325,392/5,427,257)*100=61.3% Cost percentage of revenue (125,521/972,309)*100=13% (202,910/1,528,545)*100=13.3% (293,800/2,218,767)*100=13.2% EPS 21,610/11= $ 1,964.5 26,769/12= $ 2,230,8 -15,747/13= $- 1,211.3 Share prices as at 31 Dec 114.82 207.42 229.71 From the above financial analysis the following can be interpreted: Current ratio- The firm’s current ratio is increasing and getting stronger as the years progresses. A ratio of above one indicates the firm can settle its short-term obligation within a financial year and still conduct its operation effectively. This is proven by the net working capital across the year which increase across the year. In the year 2012, the ratio was 2.45 it rose to 4.7 in the year 2014. Return on Assets- The value of assets owned by LinkedIn Corporation is increasing across the financial years that have been analyzed above. However, the return on this asset is decreasing. This simply means that the assets the firm have invested on are not been utilized to the maximum or the resources are in surplus (Harrison, and Charles, 19). In the year 2014, the return was in negative figure because the firm had incurred losses. The revenue generated across the three years was increasing as well as the costs for revenue generation. However, the rate at which the cost of revenue was increasing was higher than that of revenue being generated. This has to be taken into account because if this continues LinkedIn profits will be “eaten-up”. Equity ratio- This ratio indicates a firm dependence on debt to run its operations. From the above analysis the equity ratio for LinkedIn is good because over 60% of the firm’s asset was financed by its shareholders. However, in the year 2014 the equity ratio dropped to 61.3% from 78.4 % in 2013. According to (Samuels, and Wilkes, 72), it indicates the firm had increased its borrowing. This has to be controlled because if the trend continues the firm’s solvency will be at stake. The shares of LinkedIn Corporation is increasing as indicated in the above table. This is supported by the increased earning per shares, however, this dropped in the year 2014, because the firm incurred losses. Comparison with Twitter, and Facebook. The following are the financial information for Twitter and Facebook year ending 2014 Item Twitter Inc. Facebook Corp Figures in ‘000 Current asset $ 4,255,853 $ 13,670,000 Total asset $ 5,583,082 $ 40,184,000 Current liabilities $ 393,794 $ 1,424,000 Total liabilities $ 1,956,679 $ 4,088,000 Revenue $ 1,403,000 $ 12,466,000 Cost of goods $ 446,310 $ 2,153,000 Net income $ (577,820) $ 2,925,000 Shareholder’s equity $ 3,626,403 $ 36,096,000 Source https://finance.yahoo.com/q/bs?s=TWTR Balance Sheet&annual. https://finance.yahoo.com/q/bs?s=FB Balance Sheet&annual. Analysis for comparison From the above analysis the following can interpreted: Current ratio-Al the three firms have a good ratio for the year ending 2014. Twitter Inc. has the best with a ratio of 10.81 followed by Facebook Inc. with 9.6 ratio. This is supported by a positive net working capital, however, Facebook leads the net-working capital. Return on Asset- Two of the firms, that is, LinkedIn and Twitter have a negative rate of return for their asset. This is due the loss the two firm experience in the year 2014. Facebook Inc. on the other hand, has a positive rate of return of 7.2%. This indicates that Facebook uses its resources more efficiently to generated income as compared to both Twitter and LinkedIn. The reason for low or negative rate of return on Twitter’s asset can be linked to the higher cost of goods incurred in generation of revenue which stands at 31%. LinkedIn has the lowest, but still had a negative return on asset. Equity ratio- The ratio of the three firms is good and indicates sign of insolvency. Over 60% of the firm’s assets are financed by the shareholder’s equity. Facebook takes the lead with 89.8% being financed by its shareholders. Since they are publicly traded companies these ratios indicates their resilience. SWOT ANALYSIS Strength: Its capability to provide platform for professionals makes them grow in their career and also one’s professionalism be known to other professionals. This is the reason why it has attracted over 400 million members who wants to grow their profession or career. Weakness: The firm relies heavily on mobile app to get new members for their site. This is a threat to the company if users fail to install the mobile app, this will mean low users being added to the site. In addition to that the firm get engaged much on online recruitment, thus being regarded as a career portal but not a social media network Opportunities: The growing demand for online advertisement creates an opportunity for the firm. The performance of its advertisement activities is low as compared to subscription and recruiting business. This indicates that it can improve its advertisement business to meet consumers’ need. Threat: Players in the social media have increased for example, Snapchat, Instagram, et cetera thus making social media industry be more competitive. This is a threat to LinkedIn Inc. because if it does not become innovative there is high chances of it being “driven away” from the online market. References "FB Balance Sheet | Facebook, Inc. Stock - Yahoo! Finance." FB Balance Sheet | Facebook, Inc. Stock - Yahoo! Finance. Web. 22 Nov. 2015. . Harrison, Walter T., and Charles T. Horngren. Financial Accounting. 4th ed. Upper Saddle River, NJ: Prentice Hall, 2001. Print. "LNKD Balance Sheet | LinkedIn Corporation Class A Co Stock - Yahoo! Finance." LNKD Balance Sheet | LinkedIn Corporation Class A Co Stock - Yahoo! Finance. Web. 22 Nov. 2015. . Samuels, J. M., and F. M. Wilkes. Management of Company Finance,. London: Nelson, 1971. Print. "TWTR Balance Sheet | Twitter, Inc. Common Stock Stock - Yahoo! Finance." TWTR Balance Sheet | Twitter, Inc. Common Stock Stock - Yahoo! Finance. Web. 22 Nov. 2015. . Read More