Markets

3 Reasons LinkedIn's Stock Has Defied the Market Sell-Off

By Jim Edwards

Updated on: August 5, 2011 / 2:42 PM EDT / MoneyWatch

Here's an interesting puzzle: Why is it that with markets crashing all over the world, LinkedIn's stock (LNKD) is at a buoyant $94, defying the carnage elsewhere, even though management intends to heavily dilute investors' holdings with more stock sales in the next few months?

Its Q2 2011 earnings contain the answer: profits -- something most other dot-com companies don't have right now. LinkedIn made revenue of $121 million and net income of $4.5 million in the quarter, up 120 percent and 5 percent, respectively. Of that revenue, help wanted ads were $59 million and brand ads were $39 million.

But it's not just the profit that is interesting about the company -- it's how much room the company still has to grow into. Consider:

The "outer universe" of social networking sites is probably represented by Facebook, at around 600 million users. LinkedIn reported that its members grew to 115.8 million, a fraction of Facebook's size.
The company has only 12 foreign offices and publishes in just nine languages, a fraction of the number of countries and tongues it could eventually conquer.
And LinkedIn's new "Share" button for social media is fast becoming more important to certain types of publishers -- business publishers like BNET, for instance -- than Facebook's Like button, in terms of driving traffic. LinkedIn Share does something that Facebook Like does not: Every share drives the headline on that story higher within LinkedIn's news pages, making LinkedIn's syndicated headlines more dynamic and more useful to readers than Facebook's News Feed, which just kinda lists things chronologically.

All that means is that LinkedIn is only at the beginning of its journey -- and it's already making money (unlike Pandora (P), FriendFinder Networks (FFN), Groupon (GRPN) and Demand Media). It's tough to argue against that. Which is why, unless that dilution brings LNKD back down to earth, I may owe the company an apology.

It also puts more of a focus on Facebook's inevitable IPO: When Facebook's memberships slows or stops growing, we'll know how big LinkedIn's universe could possibly get. At that point, the company may need a new, non-growth strategy.

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Image by Flickr user EricLBC, CC.