Why LinkedIn Is Worth Buying Below $200

NEW YORK (TheStreet) -- A broad selloff of tech stocks and a weak quarter have pushed shares of LinkedIn (LNKD) to the point that they trade well below social networking counterparts.

With the large selloff, this is the first time that shares of LinkedIn have traded below $150 a share in over a year. Shares are currently at $146, down nearly 33% for the year to date. Thus the company presents an exciting opportunity for long-term investors, particularly with some of its plans for expansion, including into China.

First, the numbers: LinkedIn's first-quarter revenue and earnings numbers actually beat expectations, and the company raised its full year 2014 guidance. Yet, the market has pounded LinkedIn.

Both Facebook (FB) and Twitter (TWTR) experienced similar selloffs when they announced earnings last month. So it shouldn't come as a surprise that LinkedIn was hammered. But specifically for LinkedIn, investors' fear of a slowdown in user growth might be over-exaggerated.

LinkedIn's unique visitors increased 9% year over year, which is below the 21% increase the company saw during the fourth quarter. There was also a 19% drop in the year over year net additions of corporate solutions customers. These customers are part of LinkedIn's talent solutions segment, which generates the bulk of its revenue, nearly 60% of total revenues.

But this professional social network has impressive competitive advantages over the likes of Facebook and Twitter. With the selloff in its shares, it now trades at only 13 times sales. Facebook is trading at 17.5 times sales and Twitter at 33 times.

Facebook and Twitter are heavily reliant on advertising revenue, but LinkedIn remains a powerful tool for companies and recruiters. The professional users on which LinkedIn focuses are more likely to pay for premium services and subscriptions than individuals.

Taking a broader look, LinkedIn actually grew its member base by 6% to 296 million members last quarter. Its revenues for all segments were up nicely; marketing solutions revenue was up 36% year over year, premium subscriptions up 46% and talent solutions up 50%.

The key for LinkedIn investors is not the user growth, but deeper penetration of the nearly 300 million users that LinkedIn already has. This will involve increasing the services it offers.

LinkedIn believes its current addressable market is 600 million knowledge workers, but there's a long-term opportunity to increase its addressable market to the 3.3 billion global workforce.

Its talent solutions segment was one of investors' key concerns when last quarter's numbers were released. User growth in this segment is slowing, but the company is doing a lot to penetrate this user base. Its InMail and enhanced search system have already been increasing recruiter and user engagement.

The next big opportunity in this segment is its sales navigator feature. LinkedIn is increasing its focus on this feature, which helps professionals target customers and market products. Just another step in trying to increase user engagement.

The other long-term opportunity is in China. LinkedIn has already launched a Web site in Chinese to cater to the very large workforce in China.

For long-term investors, the pressure in LinkedIn's shares could be presenting an exciting buying opportunity.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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