Forget Twitter and Facebook! Here's the One Social Media Stock to Buy for 2016

Editors' Pick: Originally published Dec. 29.

As we tally year-to-date stock performances in the final days of 2015, many of Wall Street's erstwhile angels have dirty faces. Chief among them: Chipotle Mexican Grill (down 28%); GoPro (down 72%); and Twitter (down 37%).

But one "trendy" stock that gets a lot of press has held its own: LinkedIn (LNKD) . Essentially flat for the year (in line with the S&P 500), LinkedIn has racked up a five-year gain of 146%, vs. 65% for the S&P 500. On average, analysts expect this stock to gain another 22% over the next year, a period that's expected to be mediocre at best for the broader markets.

LNKD Chart

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LinkedIn is a rare hybrid animal: a social media stock with stability. That's in stark contrast to a group of overhyped and overvalued investments that are poised for sharp tumbles in 2016.

LinkedIn is the world's biggest professional networking service on the Internet. Based in Mountain View, Calif., the company was founded in 2003 by former PayPal executive Reid Hoffman, who has emerged as a Silicon Valley guru and billionaire.

LinkedIn reported stellar third-quarter operating results that position the company for outsized performance next year. The company's third-quarter revenue increased 37% year over year to $780 million. Adjusted earnings before interest taxes, depreciation and amortization was $208 million, or 27% of revenue, roughly equal with the same period a year ago. Adjusted earnings per share improved to 78 cents, compared with 52 cents in the same period a year earlier.

Management gave full-year 2015 guidance of revenue in the range of $2.975 billion and $2.980 billion. Adjusted EBITDA is expected to come in at about $740 million. Non-GAAP EPS is expected to reach $2.63.

LinkedIn's cumulative membership in the third quarter grew 20% year over year, to 396 million. That's a big jump, but then again, monetizing member bases and viewership on the Web is notoriously difficult, as the demise of many once-dominant media empires attests. Many social media brainchilds have enjoyed meteoric rises, only to crash because they put all of their revenue eggs in one precarious basket.

One big secret to LinkedIn's success is its multifaceted revenue approach through three business divisions that pursue new sales in three distinct ways: recruiting-tools division, marketing-solutions and premium subscription sales.

Unlike peers such as Facebook and Twitter, LinkedIn gets a much smaller portion of its total revenue from advertising, and instead charges users of premium services a fee.

Admittedly, Facebook now has more than 1 billion monthly active users. But most of these users are millennials, a customer base that's mercurial and suffers from a collective short attention span, as opposed to LinkedIn's more affluent business-oriented clientele.

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