LinkedIn Corp. (LNKD) Q1 2014 Earnings Call Corrected Transcript: 01-May-2014
Matt Sonefeldt - Head-Investor Relations, LinkedIn Corp.
Jeffrey Weiner - Chief Executive Officer & Director, LinkedIn Corp.
Steven J. Sordello - Chief Financial Officer & Senior Vice President, LinkedIn Corp.
Tom White - Analyst, Macquarie Capital (USA), Inc.
Justin Post - Analyst, Merrill Lynch, Pierce, Fenner & Smith, Inc.
Bob S. Peck - Analyst, SunTrust Robinson Humphrey
Brian T. Nowak - Analyst, Susquehanna Financial Group LLLP
Ken Sena - Analyst, Evercore Partners (Securities)
James Lee - Analyst, CLSA Americas LLC
Arvind Bhatia - Analyst, Sterne, Agee & Leach, Inc.
Neil A. Doshi - Analyst, CRT Capital Group LLC
Diana R. Kluger - Analyst, JPMorgan Securities LLC
Stephen Ju - Analyst, Credit Suisse Securities (USA) LLC (Broker)
Dan Salmon - Analyst, BMO Capital Markets (United States)
John Peter Egbert - Analyst, Morgan Stanley & Co. LLC
MANAGEMENT DISCUSSION SECTION
Operator: Good day, and welcome to the LinkedIn First Quarter 2014 Earnings Conference Call. [Operator Instructions]
I will now turn the call over to Mr. Matt Sonefeldt, Head of Investor Relations. Please go ahead, sir.
Matt Sonefeldt, Head-Investor Relations
Good afternoon. Welcome to LinkedIn's first quarter of 2014 results call. Joining me today to discuss our results are CEO, Jeff Weiner; and CFO, Steve Sordello.
Before we begin, I would like to remind you that during the course of this conference call, management will make forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to expected member growth and engagement; our product offerings including mobile; and our product deployment process; results of our R&D efforts, revenue including revenue growth rates of our three product lines; Talent Solutions, Marketing Solutions and Premium Subscriptions; adjusted EBITDA, depreciation and amortization, stock-based compensation; share dilution; taxes, the product mix between Online and Field sales; churn rate; and expenses. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.
A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular, the section entitled Risk Factors in our quarterly and annual reports and we refer you to these filings.
Also, I would like to remind you that during the course of today's call, we may discuss some non-GAAP measures in talking about the company's performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in our earnings release. This conference call is also being broadcast on the Internet, and is available through the Investor Relations section of the LinkedIn website.
With that, I will turn the call over to our CEO, Jeff Weiner.
Jeffrey Weiner, Chief Executive Officer & Director
Thank you, Matt, and welcome to today's conference call. I'll start by summarizing the operating results for the first quarter of 2014, and I'll recap some of the key milestones that highlight the success of our strategy. I'll then turn it over to Steve for a more detailed look at the numbers and outlook.
Q1 was a strong quarter for LinkedIn across both member engagement and financial results. We made significant progress against several key strategic priorities, such as international expansion via China, professional publishing, and the shift to content marketing.
For Q1, overall revenues grew 46% to $473 million. We delivered adjusted EBITDA of $117 million, and non-GAAP EPS of $0.38. At the end of Q1, cumulative members grew 36% year over year to 296 million, and in April, we crossed the 300 million member threshold, including 100 million in the United States. As measured by comScore, which excludes mobile, LinkedIn and SlideShare combined for an average of 186 million monthly unique visitors in Q1. When excluding SlideShare, we averaged 142 million monthly unique visitors and totaled 11.5 billion page views during Q1.
When measuring these metrics internally, which include mobile, we remain encouraged by strong member engagement. Internally measured unique visiting members grew approximately 26% year over year, and total member page views grew 43% in Q1. Going back two years to Q1 2012, when we began a period of accelerated product innovation, engagement per visiting member has increased more than 40%.
Mobile continues to be the fastest growing channel for member engagement, growing nearly 3x the rate of overall member uniques to represent 43% of our monthly unique visitors in Q1. In anticipation of our expectation that mobile will exceed half of total traffic later this year, mobilizing our technology infrastructure, engineering team, and products remains one of LinkedIn's most important priorities.
The value we deliver to members remains consistent. We enable professionals to build and manage their identities, create and leverage their professional networks; and gain the knowledge they need to be more successful in their careers, across multiple screens and devices. We want to highlight a few of our efforts since the start of the year that deliver across these value propositions.
LinkedIn profiles have become the standard way for hundreds of millions of people to build and maintain their professional identities, not merely a digital resume, but a rich portfolio of their experience, skills, and knowledge. We know that the more complete a profile is, the more useful it becomes to that member. For example, profiles with photos generate 14 times more views than those without.
Profile completeness is an ongoing priority for LinkedIn. To that end, in February, LinkedIn launched a new version of Who's Viewed My Profile, an analytics dashboard that gives members actionable intelligence on how they can build their professional brands. In Q1, we also took significant steps toward our mission to connect the world's professionals with the launch of our beta site in simplified Chinese. This localized site aims to broaden the member base from four million English language members today, and to appeal to the 140 million professionals and students in China. While it is still very early, we are pleased with our progress in China and remain focused on developing the LinkedIn team, brand, and local Chinese product.
Building on the success of our exclusive Influencers program, in February, we took the next step toward scaling our professional publishing platform by enabling any member to publish long-form content on LinkedIn, helping define a member's professional identity while also delivering valuable insights to their network. We are phasing in this functionality to ensure that as more content is being created on LinkedIn, the right content is getting in front of the right professional at the right time.
Long-form publishing is available to several hundred thousand members now, and will grow throughout the year. Early indications are positive. So far, we've seen greater than six times projected uptake of the functionality, more than four times the number of page views per post, and more than twice the number of posts per author than we had initially projected.
Meanwhile, the Influencer program continues to provide a valuable opportunity for global business luminaries to reach a professional audience in an ideal context. The average Influencer post drives more than 30,000 views, and we've heard repeatedly from Influencers that the quantity and quality of engagement on their posts is the highest they've seen on the Web.
Creating value for our members enables us to deliver useful offerings to customers of our Talent Solutions, Marketing Solutions, and Premium Subscriptions products. These product lines transform the way our customers hire, market, and sell on a global basis. In Q1, Talent Solutions grew 50% to $276 million; Marketing Solutions was up 36% to $102 million; and Premium Subscriptions increased 46% to $96 million.
For Talent Solutions, we continue to innovate around our Recruiter platform on both desktop and mobile. A few weeks ago, LinkedIn launched Internal Job Recommendations, which gives recruiters a better way to identify and attract some of their best candidates, existing employees looking for a new challenge or career advancement.
On the mobile front, we launched Recruiter on Android and released an enhanced version of Recruiter for iPhone. We believe that LinkedIn is still in the early days of fundamentally transforming the talent industry and in the coming years, are focused on growing the business to the point where LinkedIn powers half of all of our customers' hires.
One of our core strategies is to materially increase the volume of job opportunities available on LinkedIn, and improve the relevance of those opportunities for our members. The acquisition of Bright in the first quarter was a major step toward achieving a foundational element of the economic graph: to ultimately have every job available on LinkedIn. We have quickly integrated the Bright team, are looking forward to the first test implementations of the integration later this year.
In Marketing Solutions, Q1 saw accelerating momentum of our shift toward content marketing. Sponsored Updates now represents 19% of revenue for Marketing Solutions, an increase from 13% last quarter. We recently surpassed 3,000 active customers running Sponsored Update campaigns, many of which are renewals from last year. And our Sponsored Update customers are seeing materially improved engagement on their content, particularly on mobile, when compared with traditional online advertising.
In addition, just last week we launched our Sponsored Updates API program with five strategic partners. During the pilot period, the beta customers in the partner program experienced an overall lift of 30% in click-through rates versus prior self-managed efforts.
Within Sales Solutions, we continue to build towards the second half of 2014 as we invest in both dedicated R&D and a growing sales team. In Q1, we introduced a new Lead Recommendations feature into Sales Navigator. This further underscores the value of using LinkedIn to help sales professionals identify the most relevant prospects in their networks. We look forward to the continuing evolution of this product line later this year.
Finally, we'd like to extend a welcome to our incoming new college grads, and to our 2014 intern class, LinkedIn's largest ever. This program is an integral part of our ability to find the best emerging talent and provide them the opportunity to transform their careers, and those of our members. Talent is our number one operating priority and our most important asset, and this incoming group will continue to add to our team.
And now, I'll turn it over to Steve for a deeper dive into our operating metrics and financials.
Steven J. Sordello, Chief Financial Officer & Senior Vice President
Thanks Jeff, Today I will discuss growth rates on a year-over-year basis unless indicated otherwise, and non-GAAP financial measures exclude items such as stock-based compensation expenses, amortization of intangibles, and the tax impacts of these adjustments. The engagement metrics I discuss will refer to internally measured metrics. And finally, we have shared a transcript of today's prepared remarks on our Investor Relations website to accompany our key metrics.
Turning to first quarter results, member metrics were healthy. Cumulative members grew 36% year-over-year, unique visitors increased 26%, and total page views, including mobile, grew 43%. Desktop-only page views increased 13%, consistent with the approximately 10% growth range we expect for the full year.
First quarter member results reflect the successful long-term investments made in mobile, content, and the underlying technology platform, which have led to an all-time high level of page views per unique member.
In the short-term over the next few quarters, we expect some year-on-year compression in engagement comps. As we've discussed previously, strong product execution post-Inversion led to faster iteration on core products, with member growth oriented products showing particular strength in 2013. This led to accelerated engagement in the second and third quarters of last year.
With regard to monetization, growth was strong across all three product lines, leading to $473 million in revenue, an increase of 46% year-over-year. Talent Solutions continued to perform well as our largest and fastest growing revenue line. Revenue increased 50% year-over-year to $276 million, representing 58% of our overall business compared to 57% last year.
The underlying fundamentals of the business remain strong. Within the field sales channel, roughly 75% of Talent Solutions revenue, the sales force executed well, generating growth in excess of 50% year-over-year. As we discussed last quarter, a majority of field sales revenue is generated by deepening relationships with existing customers. Our multi-year investment in balancing our sales force between relationship managers and new customer reps continues to produce strong results, proven out this quarter by an increasing net ratio. This metric measures renewals and add-ons net of churn, and is a positive outcome given the larger base of recurring business.
On the new business side, productivity of new customer-focused reps improved 10% versus last year, one of our stronger productivity quarters over the past two years. Net customers grew by 1,400 in the quarter to a level that now exceeds 25,000 accounts under contract. As Talent Solutions continues to scale, expanding the number of customers remains important to broadening our overall footprint, but revenue will continue to be primarily driven by further penetrating the existing customer base.
The self-serve portion of Talent Solutions, approximately 25% of the product line, also performed well, with growth similar to Q4. Growth from online job listings was strong, partially driven by price increases in select markets, and we also saw strength in job seeker subscription growth.
More holistically, Talent Solutions continues to transform how companies can identify and hire the best possible candidates leveraging the LinkedIn member base. As members and engagement grow, we continue to improve our visibility into a multi-billion dollar long-term opportunity where LinkedIn powers the majority of customer hiring, across employers of all sizes.
Marketing Solutions grew 36% to $102 million, representing 22% of revenue versus 23% last year. As Jeff mentioned, Sponsored Updates is gaining traction as our first step towards a broader content marketing strategy. The renewed momentum around Marketing Solutions ties back to the investment and a re-focused approach we took in 2013, including bringing on new products and sales leadership. For the remainder of 2014, we will focus on scaling up the partner network through the recently launched API, and will to continue to invest in adding new product functionality and analytics tools to further illustrate ROI.
One area we will continue to watch is the Sponsored Updates' impact on our traditional desktop-based business. Traditional ad growth was positive year-over-year and stronger than industry trends, although growth slightly trailed desktop inventory growth. Field sales sell-through and pricing improved versus last year, with Sponsored Updates having a neutral to positive impact on traditional ad growth in the early going.
Finally, Premium Subscriptions grew 46% to $96 million, steady at 20% of revenue relative to last year. Within general subscriptions, which remains the lion's share of subs revenue, performance looked similar to that in the fourth quarter, with retention rates at two-year highs and annual subscriptions at 50% of the base relative to the low 40% range a year ago.
Sales Navigator continued to grow materially faster than general subs, leading to a greater contribution of subscription revenue. As a reminder, Sales Navigator remains more heavily weighted today towards individual subscribers relative to enterprise customers, although we envision this dynamic switching longer-term to favor more enterprise contribution.
Turning to revenue by geography, we saw nice results outside the U.S., with international revenue increasing 53% year-over-year, and displaying slight acceleration in EMEA and APAC, good results in both markets. International comprised 40% of revenue versus 38% last year and by channel, online contributed 42% of revenue compared to 43% a year ago.
Moving to non-GAAP measures, adjusted EBITDA was $117 million, a 25% margin, versus $83 million and a 26% margin last year. Stock compensation, and depreciation and amortization both finished in-line with our guidance at $68 million and $50 million, respectively.
For taxes, GAAP expense totaled $14 million, higher than our $10 million to $12 million expectation, as GAAP tax remains an area of limited visibility. Our non-GAAP tax expense was $26 million, resulting in a 35% rate. Beginning this quarter, we have updated our non-GAAP tax forecasting to reflect a static tax rate, allowing us to have better visibility and we expect a 35% non-GAAP rate for the remainder of 2014.
GAAP net loss in the quarter was $13 million, resulting in a loss per share of $0.11 on 121 million fully diluted shares compared to a gain of $23 million and $0.20 of EPS last year. On a non-GAAP basis, net income was $47 million for EPS of $0.38 on 125 million fully diluted shares compared with $52 million and $0.45 last year.
One last note on the P&L as it relates to our China joint-venture. The stake owned by our JV partners can be seen on our balance sheet as a redeemable non-controlling interest, and we expect that value to increase over time. The change in value will impact GAAP earnings on a quarterly basis, having a $126,000 impact in the first quarter. This non-cash charge will not impact non-GAAP results.
The balance sheet remains healthy with $2.3 billion of cash and marketable securities. We generated $129 million in operating cash flow compared to $104 million last year. However, free cash flow decreased to $40 million compared to $60 million last year. The change is primarily due to our increased CapEx budget, driven in large part by our self-managed data center project, which I discussed during last quarter's call. We continue to expect CapEx to be in the high-teens as percentage of revenue for this year.
I will end the call with guidance for the second quarter and an updated outlook for 2014. For revenue, we expect Q2 to range between $500 million and $505 million, 38% growth at the mid-point. For the full year, we are raising our outlook by $35 million, to range between $2.06 billion and $2.08 billion, a 35% annual growth rate compared to the 33% reflected in prior guidance.
For Adjusted EBITDA, we expect Q2 to range between $118 million and $120 million, a 24% margin at the mid-point. We are increasing our full year outlook range to between $505 million and $510 million from approximately $490 million, and now representing a 25% margin at the mid-point. As a reminder, EBITDA guidance includes approximately $8 million to $10 million impact from the Bright acquisition.
For stock compensation, we expect $75 million for the second quarter and $305 million for the full year. On depreciation and amortization, we expect $53 million for the second quarter and $225 million for the full year. On tax, we expect GAAP expense of approximately $10 million for Q2 and $50 million for the year. We expect a non-GAAP tax rate of approximately 35% for the remainder of the year.
In closing, our philosophy of sustained, long-term investment delivered another strong quarter. Member growth and engagement trends remained healthy, Talent Solutions showed consistent performance, and while early, Marketing Solutions experienced renewed momentum in the form of Sponsored Updates traction.
Going forward, we will maintain this long-term focus by investing in the strategic priorities outlined last quarter, including newer initiatives such as expanding our publishing platform, scaling our jobs initiative, and making progress in our nascent sales business. We are excited for the rest of 2014, and believe our investments will continue to create a more engaging member experience while transforming the way our customers hire, market, and sell.
Thank you for your time and we will now take questions.
QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Tom White of Macquarie.
<Q - Tom White - Macquarie Capital (USA), Inc.>: Good. Thanks for taking my question. I guess on the addressable market for Talent Solutions, I was hoping maybe you guys could update us on the breakout of [ph] CSC (19:08) enterprise customers U.S. versus international? And in the past, you guys have talked about that 75,000 global enterprises as being a sweet spot for that business. How should we think about that addressable market, if we only include countries where you guys either have achieved scale in terms of membership or on your way to achieving scale? Should we be thinking about a smaller number if we kind of limit it to those countries? Thanks.
<A - Steve Sordello - LinkedIn Corp.>: Well, I think in terms of, first of all, the SMB market, that's just north of 50% in terms of absolute customers. If you look at it on the revenue basis, it's about 30%. So, it continues to grow in terms of number of customers. In terms of the addressable market, we've talked historically - few ways to look at it. There are 50,000 to 100,000 companies that have greater than 500 employees, that's one market. If you actually include companies with less than 500, the tail goes to about 200,000 globally. Obviously, it's a long SMB tail.
Another way to take a step back and look at it is, as we look at the number of Talent professionals on LinkedIn, of which they're about 1.5 million defined as recruiters, and about another four million HR professionals. And that leaves us the visibility between a $7 billion and $10 billion opportunity, based on the members on LinkedIn today and the products and pricing that we have on LinkedIn. And then broader, we talked about the $27 billion landscape, which encompasses sourcing jobs in media and if you include temp consulting, it becomes much larger than that.
So, that's how we define the overall addressable opportunity in terms of overall TAM and kind of the media visibility. When you're talking about specific regions, we do tend to see most of the opportunity at least on incremental basis outside of the U.S. There are different productivity levels within each of those regions, but when you look at where we're stealing most of the hunter growth, it's outside the U.S. at this time, still heavy investment in the U.S., but on a relative basis more internationally.
Operator: Our next question comes from the line of Justin Post of Merrill Lynch.
<Q - Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.>: Great. Thank you. A couple of questions. On the Corporate Solutions customer ads, it was a little bit down versus Q4 last year, I think 1,400 versus 1,700. You mentioned productivity of sales was strong, but maybe you could talk a little bit about that? And then, you said jobs was a focus for the company this year. Wondering if you could help us understand how that business impacts both the Talent Solutions and Premium Subscriptions businesses and how much progress you made in the quarter and what your outlook is for that segment going forward? Thank you.
<A - Steve Sordello - LinkedIn Corp.>: Sure. I'll take the first part. So, as you know, this Talent Solutions business of ours continues to have a lot of solid momentum. We're at a scale now where we have north of 25,000 customer accounts. And when you look at the growth in the quarter, we actually added over 3,000 gross new customer accounts. And that growth rate has been pretty much in the mid teens for the last several quarters, which pretty much mirrors our growth in hunter reps. And as you know, as your scale becomes larger and even if you churn is flat against that larger scale in any given quarter, it impacts your net adds. And so, we're experiencing that somewhat in terms of the net add growth.
The other factor that is more important is the vast majority of the revenue now comes from existing customers, given that we're over 25,000, so north of 75% of the revenue. And the customer spend within the existing accounts over the last two years has just continuing to improve very nicely. You can see it in things like our net ratio, which measures add-on renewals, net of churn, being up year-on-year despite the bigger base of business, which is a very positive result. And the fact that, within these accounts we continue to sign bigger deals shows up in our ARPU at record levels, broaden our product portfolio, and then to a lesser extent the pricing impact from last year's price increases. So, we expect those trends to continue. So, in terms of the net adds, it's not something that we're concerned about when you look at the bigger picture of the dynamics of these businesses. Businesses still have a lot of momentum.
<A - Jeff Weiner - LinkedIn Corp.>: With regard to your second question on the jobs front, I would start by saying, our long-term objective is to digitally represent every job available. That's our cornerstone of our economic graph vision. So, that's the long-term view and strategy. In the short to intermediate term, we want to start to increase the number of jobs available. The more comprehensive our offering, the better on at least two fronts, one is engagement and the other is monetization. With regard to engagement, we see, especially in developing markets, a disproportionate number of younger professionals coming on LinkedIn students and today we don't necessarily have relevant jobs available for them, and we think by increasing the comprehensiveness of our jobs offering, we can help these students to get their first jobs and create a much more engaging experience. So, we're excited about that opportunity.
From a monetization perspective, we would expect that as we increase the number of jobs, it's going to fit nicely with our existing portfolio of Talent Solutions business lines - so, our flagship Recruiter product, the ability for companies to purchase and post jobs on LinkedIn, to feature jobs, to get the right job in front of the right member at the right time, talent branding, so forth. So, we think that increasing the comprehensiveness of our jobs offering is going to generate value throughout the entire ecosystem.
Operator: Our next question comes from the line of Robert Peck of SunTrust.
<Q - Bob Peck - SunTrust Robinson Humphrey>: Two quick questions if you don't mind. One in Talent Solutions, could you talk a little bit about the price increases and the impact it's had with clients so far? What are you seeing as renewal rates there and how the price increases are going through and the impact on the seats per client with the increases? And then number two, could you also just talk about, you discussed handling 50% of the customers hiring long-term? Where are we to-date and how do you see us progressing to that? Thanks so much.
<A - Steve Sordello - LinkedIn Corp.>: So in terms of the price increase, as you know, Q2 of last year we had a somewhat modest price increase, mid-single digit in select regions. And that has flowed through pretty naturally. We haven't really seen any negative impact from that price increase in terms of [indiscernible] (25:36). Like I said, it's a lesser extent but it's also helping our ARPU. So, that is something that's just continuing to play through without much of an impact. In terms of the goal of the 50% of customer hires, that's something that continues to build. We're just north of 25% today and we're monitoring that every quarter as we move forward towards that goal.
Operator: Our next question comes from Brian Nowak of SIG.
<Q - Brian Nowak - Susquehanna Financial Group LLLP>: I've got two please. First of all, we have the total page views and engagement metrics. Just wondering if you could help us on what percentage of the total page views are homepage at this point and how fast are those growing if we include desktop and mobile, just so we can understand the size and the cadence of the sponsored content addressable market? And I have one follow-up.
<A - Steve Sordello - LinkedIn Corp.>: Yeah. Well, what we can say, we don't break down traffic at that granular level in terms of the percentage, but the homepage has been growing materially faster than the rest of the site, north of 50% faster. And that is directly contributable to the investments we made in the publishing platform in mobile and a few of the other services. So, we're very pleased to see - another positive indicator we've seen is, as I mentioned, page views per unique visitor at record levels. And so, the people that we are engaging with those products are using the site more often.
<Q - Brian Nowak - Susquehanna Financial Group LLLP>: And then the follow-up I had. Late last year, you rolled out a multi-app strategy with Contacts and Pulse and Mobile Recruiter, since dialed back a bit on it. Just curious about your thoughts on how you plan on continuing to grow your overall app user bases across all these different app offerings or do you think it's better to consolidate toward one app?
<A - Jeff Weiner - LinkedIn Corp.>: We're going to continue down the same path and actually, we haven't slowed down per se. The rate with which new apps, as part of a multi-app portfolio were being introduced may have slowed relative to where it was, because we had a period where it was one app after the other, but those teams have been hard at work, building, and developing the next generation of each of those offerings and we're excited about what's in the pipeline. We also have some additional applications that have yet to launch, all part of our effort to mobilize and we think that's going to be increasingly important given roughly 42% of our traffic coming via mobile channels today and we expect that to look more like half of our overall traffic in the not too distant future.
<Q - Brian Nowak - Susquehanna Financial Group LLLP>: Thanks.
Operator: Our next question comes from Ken Sena of Evercore.
<Q - Ken Sena - Evercore Partners (Securities)>: Hi. Can you may be - just another question on Sales Navigator. You mentioned switching the focus from individuals to enterprise. Can you just walk us through that evolution a little bit more, maybe the feedback that you're getting from enterprise on the product that makes you see a need for a change? Thanks.
<A - Jeff Weiner - LinkedIn Corp.>: I don't know that it's necessarily directly tied to feedback. The feedback thus far has been very positive with regard to the existing portfolio of product offerings, but it's always been our vision with regard to Sales Solutions to ultimately introduce a product that would be somewhat analogous to our Recruiter flagship product, which we've developed for recruiters and hiring managers, and we'd like to be able to offer something similar to sales professionals, business development professionals, et cetera. So, that's always been the long-term objective. We're executing well against that roadmap. We continue to invest in the right talent. We have an amazing team that's currently at work and continuing to expand that product portfolio. So, we're pleased with the results thus far.
<Q - Ken Sena - Evercore Partners (Securities)>: Okay. Thank you.
Operator: Our next question comes from James Lee of CLSA.
<Q - James Lee - CLSA Americas LLC>: Great. Thanks for taking my question. My question is regarding to your latest API partnership, Sponsored Updates. I realize you have selected a number of partners. Can you talk about your thinking behind the selection process? Is it because they're best in performance marketing or they're best-in-class in B2B marketing in general? And also help us understand, at what point you'd be expanding this marketing program beyond the initial partnership there? Thanks.
<A - Jeff Weiner - LinkedIn Corp.>: So, I'll start with the second part of your question first. The ultimate objective is to expand beyond the current group of five pilot partners. Ultimately, we like to be easy for any customer of our Marketing Solutions products to be able to leverage those kinds of tools and those third parties, if that makes sense for them.
With regard to the selection process of the five current partners, I think it was a combination of multiple variables, includes the quality of the partner and the scale they've achieved thus far to-date, perhaps pre-existing working relationships and partnerships, the expression of interest on their part, their ability to move on a timetable that made sense for both parties. It was really multivariate equation. And we're going to continue to think through which factors make the most sense as we continue to add new partners going forward.
Operator: Our next question comes from the line of Arvind Bhatia of Sterne Agee.
<Q - Arvind Bhatia - Sterne, Agee & Leach, Inc.>: Thanks for taking my question. I was wondering if you wouldn't mind going back to your long-term margin targets, and refresh us on how you intend to get there. I think you've talked about mid-30% margins and I know you're in an investment phase right now, but if you were to get to those doubles over the long run, what would be the key contributors, which line items would contribute more?
And then on China, I was wondering if you might talk about when we should expect maybe some step up in investments there, and when do we expect monetization, et cetera, in that market over the long run. Thank you.
<A - Steve Sordello - LinkedIn Corp.>: Yes. So the long-term margins, yes, we have spoken about 30%, 30%-plus long-term target, which basically encompasses the model that looks something like 80% gross margins, sales and marketing somewhere between 25% and 30% which is somewhere hybrid between a SaaS and a web model, R&D ratio that's somewhat in the high-teens, and then a G&A somewhere around 9%, 10%, and that's where it kind of gets you to that 30%, 30%-plus margin profile.
Today our projection for this year is 25%. We actually just increased that this last quarter from 24%. And as you know, we're a company that given the opportunities we have in front of us, we're really investing here for the long-haul, not in terms of maximizing short-term profitability but optimizing the long-term model. We talked about a number of initiatives in terms of the core platform on the last call, including China, the jobs initiatives with the Bright acquisition, the publishing platform, mobile, et cetera.
[indiscernible] (32:37) in the business, we have varying degrees of business launches, including Sponsored Updates, the consumer sub product, and Sales Solutions which we just discussed. On top of that, I just want to highlight, there's a lot of infrastructure investment going on in the company today that's building up for the long-term. We talked about data center investments. There is facility investments we're making. All of those things are part of this long-term mindset of investing for the future. So the path of getting to that 30% is based on a trajectory of the business lines today. I would say the speed we get there is so much relative to the mix of businesses.
The Marketing Solutions businesses tend to have more variability in terms of the margin over a shorter period of time given the other businesses are subscription based. So some of those factors come into play in terms of timing. But our goal is to optimize the long-term profitability of the company and that's where today's investments are focused.
<A - Jeff Weiner - LinkedIn Corp.>: With regard to China, there is no immediate plans for significant step up in investment, so much as steady as we go. We continue to invest there. We're pleased with the results thus far following our launch. We're very focused in a few different areas; one, obtaining a license, so we can do business in China at scale remains a very significant addressable opportunity for us with 140 million professionals and students in market. Two, we want to continue to build out our team and we're off to a very strong start on that front. Derek Shen, our President of LinkedIn China, has been doing a great job attracting world-class talent to the team. Three, we want to continue to invest in the localization of our product and the performance of the existing product that is up and running today.
And with regard to monetization, we want to make sure we get those other building blocks in place before we really start to ramp up monetization efforts. That said, we are seeing increasing demand by virtue of a stepped up presence in China, which we've been pleased about and we already have a sales team in Hong Kong that's been doing a nice job.
Operator: Our next question comes from the line of Neil Doshi of CRT Capital.
<Q - Neil Doshi - CRT Capital Group LLC>: All right. Thanks for taking my questions. Two questions. Jeff, you mentioned that you launched a number of mobile products to the Recruiter side. How has the adoption been for those products? What have been the challenges and how are those products priced relative to the desktop products? And then, if you could give us update on University Pages, how that's been tracking and are you starting to see more job listings targeting the younger demographics? Thanks.
<A - Jeff Weiner - LinkedIn Corp.>: Sure. With regard to mobile adoption of Recruiter, it's as we expected. I think it's going to take some time before we see significant shifts in user behavior amongst hiring managers and recruiters that are very happy with our existing set of tools. We want to make sure that we had a mobile product as part of the portfolio for those that would prefer that channel. But I would suggest that it's really according to plan along those lines, and we'll continue to invest in both ways to access our Recruiter products and services.
With regard to University Page adoption, it's been strong amongst the universities. We have north of 24,000 universities now and that was after a launch in the fall of last year. And the team want to make sure we started with a limited set of universities and then learnt, and we were able to take their feedback into consideration and made sure the tools worked well for them.
We're pleased with the progress on that front. But exactly to your point, that's one part of an ecosystem and one of the primary objectives of that ecosystem is to make sure we can help these students find their first job upon graduation. And so we would like to appreciably step up the number of job opportunities available on LinkedIn that would be relevant for students and that ties back to our job liquidity investment.
Operator: Our next question comes from the line of Douglas Anmuth of JPMorgan.
<Q - Diana Kluger - JPMorgan Securities LLC>: Hi. This is Diana Kluger on for Doug. I just want to talk a little bit on the increased inventory you guys are getting from more page views, what the dynamics are going on with sponsored content in terms of ad load?
<A - Jeff Weiner - LinkedIn Corp.>: Could you be more specific? When you refer to ad load, did you mean yield, the number of Sponsored Updates ads appearing?
<Q - Diana Kluger - JPMorgan Securities LLC>: Yes, exactly.
<A - Jeff Weiner - LinkedIn Corp.>: Yes, sure. I'll start, Steve, you can chime in. We're very pleased with the results of our Sponsored Update program thus far to-date and more broadly defined sponsored content, which is something we want to roll out even more broadly. We have exceeded our own expectations on multiple fronts here. The number of advertisers, the level of engagement that we're seeing from the membership, the spend, our retention, we're seeing bigger deals on a global basis which has been wonderful for the team. We're actually seeing a subtle halo effect from Sponsored Updates into our other Marketing Solutions products.
And with regard to inventory, this ties directly back to our objective to be the definitive professional publishing platform. So the more engagement we can generate there, the more content being generated, the more inventory becomes available, and those two dynamics are playing off each other very nicely thus far. So, we're going to continue to invest in both areas. Those are primary strategic objectives for us.
Operator: Our next question comes from the line of Stephen Ju of Credit Suisse.
<Q - Stephen Ju - Credit Suisse Securities (USA) LLC (Broker)>: Following up on the point earlier, anything you can say in terms of whether the content that folks are publishing on LinkedIn is unique and is not available elsewhere? How quickly you think this can be leveraged through increased engagement on either the LinkedIn app or even the Pulse app as a pretty differentiate proposition to the consumer?
And Steve, as a follow-up to the 50% of hires question earlier. You said you are at 25% today. Presumably there are certain Talent Solutions clients who are [ph] trending (38:37) higher than the 25% and probably closer to the 50%. So as you look at each client in isolation as they get onboarded and eventually ramped, do they follow a pretty defined ramp-up curve and how has the shape of the curve changed over time as your sales force productivity gets better? Thanks.
<A - Jeff Weiner - LinkedIn Corp.>: So with regard to your first question on unique content, it's an interesting question, one we don't get very often, an astute question in terms of the value we're capable of generating there, and it's really a mix. Some of the folks that author and publish on LinkedIn are doing so only on LinkedIn. They're extremely pleased with the levels of engagement, the quality of engagement, the quantity of engagement they're seeing anecdotally. We here from a number of influencers, folks whose content has been distributed across the web for many years now, they're suggesting that they're seeing the highest levels of engagement they've ever seen before, which we attribute to the value of a professional context.
There are other folks who are going to be interested in distributing across multiple channels and that's okay too. As long as we're creating value for members and one of the unique ways we do that is by enabling them to share content, share the professionally relevant knowledge in a way that also contributes to their professional identity, and that's one of the most unique parts of our publishing ecosystem. So every time you're authoring on LinkedIn, as soon as you click a button to publish, that's appearing on your profile, and we believe that's very unique value proposition relative to some of the other channels that you're seeing out there.
With regard to driving engagement, we're pleased with the results and they've exceeded expectations on multiple dimensions here. First and foremost the take rate. We have been flipping the switch, if you will, on members that have the ability to publish on LinkedIn in increasing numbers. We're in the several hundreds of thousands and that's going to a phase-in through the remainder of this year. The ultimate end goal is to allow all members to be able to author and publish content. And the take rate, the percentage of those people whose switch has been flipped that are actually writing is exceeding our expectation, so that's one. Two, the number of posts per person being published has exceeded expectations. And three, the amount of engagement, specifically the page views being generated through each of those authored posts has also exceeded expectations. So, net-net we're off to a good start, still very early days, but we're looking forward to continuing to scale the program.
<A - Steve Sordello - LinkedIn Corp.>: And in terms of the impacted hires, the 50% goal, yes, there is obviously a spectrum where many of our customers are higher on that curve. And I think what we've seen it comes back to the deepening the relationships of existing accounts and the success that we've had there. You've seen our seats per customer continue to stay flat in the aggregate despite adding many more SMBs. That's a sign that we're continuing to add Recruiter seats to companies which is impacting a greater percentage of the hire.
Additionally, the broadening of the product portfolio, the selling of job slots and the recruitment media, and this comes into play with the investment we're making in terms of jobs relevancy and scale over time as an objective to continue to grow that percentage. I would say, taking a big step back, it's probably a 3 to 5 year cycle before companies kind of build into what we would call all-in our objective. So that's kind of the timeframe that we've seen based on history in terms of the deepening relationships with these accounts.
Operator: Our next question comes from the line of Dan Salmon of BMO Capital Markets.
<Q - Dan Salmon - BMO Capital Markets (United States)>: Hey, guys. Good afternoon. Sorry, I was bouncing back from a couple calls, so I may have missed this one. But I just wanted to ask a little bit more about the Sponsored Updates, API partner program, and obviously started off with a small group of partners, but just wanted to hear about how you expect that program to evolve over time and what it can help bring your marketer partners.
<A - Jeff Weiner - LinkedIn Corp.>: So, to shed the scene behind the curtain here, you've got a bunch of smiles from the folks in the room. Your question is a good one and one that was asked almost verbatim before you asked it a few questions ago. But...
<Q - Dan Salmon - BMO Capital Markets (United States)>: Sorry guys...
<A - Jeff Weiner - LinkedIn Corp.>: No, no. No need to apologize. You are all busy. We get it. So I'll tell you what I said then. We're off to a good start there. We've got five excellent partners, and the team internally has been working very hard on the heels of launching general availability. The API program was always going to be one of our top priorities there, because it's going to facilitate and at times accelerate the rate with which we can scale the overall business. We've got customers who prefer to do it themselves. We've got other customers at scale who would prefer to use third-party intermediaries. So we're going to continue to invest in the API program from this point going forward. We want to broaden it out so that all of our customers can work with their partners, and we're pleased with the results thus far.
<Q - Dan Salmon - BMO Capital Markets (United States)>: And maybe I'll just follow-up and who knows maybe I'm going to strike two on this one as well, but the content publishing partners groups, folks like the Atlantic and CBS were an interesting group to see brought on with that. Is there a little bit more color on how that one may evolve as well?
<A - Jeff Weiner - LinkedIn Corp.>: Yes. That had not been asked previously, so you just scored points with everyone here. It's a unique high-quality question. Yes, the third-party publishers, we've got relationships on multiple fronts there.
First and most basic are the ability for publishers to add our InShare buttons and facilitate the sharing of their content on LinkedIn, which at times, especially for those publishers with an exclusively, professionally-oriented focus, they've seen significant results and significant traffic accruing to them as a result. We're also working with partners to be able to redistribute some of the content appearing on LinkedIn, and they're linking back to the original story. They're enabling our influencers and our authors to be followed from their sites.
Ultimately, some of these publishers have established a presence within our channel paradigm so they can be followed directly and their content is being published directly into our feed and that creates greater liquidity, greater relevancy, more comprehensiveness, and so that creates value within our publisher ecosystem as well. So multiple ways in which we can partner with folks. And we're looking forward to continuing to expand those relationships.
<Q - Dan Salmon - BMO Capital Markets (United States)>: All right. Great. Okay. Thanks very much.
Operator: Our final question comes from the line of John Egbert from Morgan Stanley.
<Q - John Egbert - Morgan Stanley & Co. LLC>: Hey, thanks. So you said Sponsored Updates were around 19% of Marketing Solutions revenue. Is it still roughly two-thirds mobile or has that ratio moved up since mobile traffic seems like its growing significantly faster than desktop?
And also a second question. Could you maybe talk about how Sponsored Updates compared to customized display deals when they were at their peak contribution to Marketing Solutions? Thanks.
<A - Steve Sordello - LinkedIn Corp.>: Sure. The mobile percentage actually has ticked up. It's about 70% today, and similar to prior quarters, the click-through rates are materially better than on desktop. So those trends are holding.
<A - Jeff Weiner - LinkedIn Corp.>: With regard to the second question, I would say, from a monetization perspective on an eCPM basis, somewhat similar which is a very strong testament, given the rates with which we were able to monetize some of those custom programs. The big difference, of course, being how much more scalable and sustainable this effort is. We're just getting started and the team is very excited about the prospects there going forward.
Jeffrey Weiner, Chief Executive Officer & Director
So with that, we're going to wrap it up. I'd like to thank everyone for joining us and we'll talk to you again next quarter. Thank you.
Operator: Thank you. This concludes today's conference call. You may now disconnect.