Disruptive business model with accelerating growth We believe LinkedIn could transform the hiring industry through viral growth of its already massive, socially-connected platform.Additionally, we believe LinkedIn has scarcity value in two ways: it’s one of the few public companies with social media characteristics and less than 10% of LinkedIn’s shares outstanding are floating. Our downside case factors in a slower hiring environment but still yields DCF valuation of $60. We believe our current estimates could still be conservative, and our upside case yields 2013 EBITDA that is 23% higher and a DCF valuation above $100. We have also run a scenario analysis that details upside and downside cases. Our $85 PT is based on our DCF for year-end 2012. Our 2013 EBITDA margin is 23.1%, and we do not reach the company’s long-term target of 30% even in 2015, though we believe this could be conservative. Our estimates suggest revenue CAGRs of 76% for Hiring Solutions and 42% for Marketing Solutions, with growth for both driven much more by volume than price. We project 2010- 2013 CAGRs of 55% for revenue and 64% for EBITDA. Strong growth driven by hiring and marketing volume.However, LinkedIn ran at 20% margins in 2010, and we believe the company can regain leverage over the next few years driven by both strong top-line growth and moderating opex. and overseas and in product development, all of which will likely keep EBITDA margins in the single digits. LinkedIn is investing aggressively this year in building out its field sales force in the U.S. Strategic near-term investment, but clear leverage in the model.As a result the company is well positioned to take share of both the ~$27 billion addressable worldwide market for staffing and talent acquisition and the ~$70 billion global online advertising market. LinkedIn’s model is diversified across subscription-based corporate recruiting, online advertising, and premium subscriptions. Large, attractive market opportunities.
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