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LinkedIn M&A chief Sara Clemens on strategy

by Suzanne Miller  |  Published October 17, 2012 at 9:23 AM
The lights were flashing, the crowd was clapping and the Spazmatics were jamming as LinkedIn Corp. CEO Jeffrey Weiner strode down the aisle of the auditorium at the MGM Grand Hotel in Las Vegas last week. "Let's give it up for the band!" he shouted as he took the stage at the company's Talent Connect recruiting conference. Turning to the packed audience bathed in a glow of blue lights, he confided with a broad smile: "I've always wanted to say, 'Let's give it up for the band.'"

That may be as close as Weiner ever gets to being a rock star. But for investors and LinkedIn fans looking on right now, that may be close enough. The social network company has been flying high since going public in May last year, unlike a handful of other high-profile Internet initial public offerings that debuted amid feverish expectations only to tumble back to earth. LinkedIn's stock has soared to $114 from its initial pricing at $45 and its market cap stands around $11.8 billion. Facebook Inc., Groupon Inc., Zynga Inc. and Pandora Media Inc. have, in contrast, fallen well below their initial offer prices.

The question many observers are asking now is whether LinkedIn's runaway success can last and what it will take to keep the crowds clapping. The company's customer base continues to grow at an impressive rate, with 175 million professional users now using the service that helps professionals connect in the job market. That's up from 120 million users around the same time last year. But revenue growth has been slowing. During the first quarter, revenue increased 101% on the year, but slipped to 89% in the second quarter. Some industry watchers note that the company's guidance suggests full-year revenue growth will come in around 76%.

Weiner clearly sees M&A playing an important role in the Mountain View, Calif., company's long-term growth plans. In 2010, the CEO plucked then-34-year-old Robby Kwok from Yahoo! Inc., Weiner's corporate alma mater, to kick-start an M&A group for LinkedIn. Under Kwok's stewardship, LinkedIn racked up five acquisitions in roughly a year -- all small startups -- for undisclosed terms. This February, Kwok left the company amid an Securities and Exchange Commission investigation that led to insider trading charges being brought this May, unrelated to LinkedIn.

Despite this cloud, analysts credit the energetic Kwok with helping to spearhead important acquisitions such as CardMunch, which scans business cards and converts them into phone contacts and which has given the company a leg up in the fast-growing mobile market. And while acquisitions have slowed this year, they haven't stopped.

In early February, the company bought Rapportive for an undisclosed price followed by SlideShare Inc. for $119 million in May. SlideShare allows LinkedIn users to share presentations and videos and is also used by companies such as IBM Corp. in the enterprise space to curate content for their employees, among other things.

Two months ago, LinkedIn hired Sara Clemens to replace Kwok as vice president of corporate development from Microsoft Corp., where she oversaw strategy, corporate development and strategic partnerships for the Xbox, Kinect, IPTV, music and video businesses. Her challenge is to find deals that will keep LinkedIn's investors holding their lighters aloft.

In an interview, Clemens said she sees M&A as another tool to grow, but shies away from talking about specific areas on her list. "We don't have a shopping list but a road map. It's important to stay nimble when you're going through a hypergrowth phase," she said, adding, "I'm really focused on building the great momentum that LinkedIn has here. We think of business and corporate development as a means to accelerate our growth map."

That growth map has three key parts: an international platform for professional identity -- displaying skills and talents online, providing "relevant insights" and enabling members to work everywhere, as she put it.

"We really see M&A as a way to help advance and accelerate the delivery of that proposition to our members," she added.

Since LinkedIn launched in 2002 from the living room of co-founder Reid Hoffman, that acceleration has been largely unchallenged. Over the past year or so, however, some rivals have emerged, such as BranchOut, a Facebook application designed to help users find jobs, recruit and network professionally. Founded in 2010 by Rick Marini, it has been growing rapidly and now has an estimated 6 million users. That's still tiny next to LinkedIn, but analysts suggest it has potential to build on its Facebook platform. It also has a pile of new money. In April, it secured $25 million in new funding from a group led by Mayfield Fund to finance its mobile-fueled growth. Last year, LinkedIn cut off application programming interface access to BranchOut for violating the network's terms of service, reflecting plans to potentially charge recruiters for access to LinkedIn data.

Then in September it pulled the plug on another, bigger competitor, Paris-based Viadeo, which describes itself as the world's second-largest social network for the business community. In April the company, which has some 45 million registered members, raised $32 million in funding to expand its professional social network into China, Russia, India, Latin American and Europe.

That means Viadeo is focused on LinkedIn's sweet spot -- the international professional community. In the second quarter, LinkedIn reported that 60% of its sales and marketing hires were located outside the U.S. Herman Leung, senior research analyst at Susquehanna International Group in San Francisco, said the company's international expansion "is a work in progress." LinkedIn, he said, "is No. 1 in a lot of countries, but there are a lot of incumbents there too."

Right now, for example, LinkedIn's version in China is largely oriented toward the expatriate community of English speakers, analysts noted. "In Japan they're [also] right-sizing the product and gearing it to be more focused for the local user. It's going to be interesting," he said. LinkedIn has offices in 25 cities around the world and is available in 19 languages.

So far, all of LinkedIn's acquisitions have been in the U.S. and it remains unclear if purchases will extend overseas -- though the company continues to plow resources into its cross-border expansion. "We have sustained strong momentum globally, with 62% of LinkedIn members located outside of the United States," Clemens said. "We continue to expand in markets such as [the Middle East/North Africa], where we just opened a regional headquarters office in Dubai. Our acquisition strategy is focused on identifying companies with proprietary technology and great teams that can help accelerate our roadmap across all markets."

Some observers suggested now is the optimal time for LinkedIn to be buying up companies, but not necessarily for reasons LinkedIn management might like to hear. "This is the best that it gets for them," said Trip Chowdhry, co-founder of Global Equities Research LLC, where he focuses on fundamental research for IT companies. "This is the right time to buy because they have a rich currency, so they can buy companies cheaper. But we have to understand, LinkedIn is a very richly valued company," Chowdhry said. He's among a small group, including a few impatient short sellers, who believe LinkedIn won't be able to sustain its torrid growth levels for much longer, pointing to a recent easing in the rate of revenue expansion.

Others suggested that such naysayers seriously underestimate LinkedIn's potential. Take Mark May and Kevin Allen, analysts with Barclays Equity Research in New York, who said in a recent note that LinkedIn remains a "highly differentiated offering" in the corporate recruiting and online ad sectors and that "investors underestimate [LinkedIn's] ability to sustain hypergrowth and underlying profitability of model."

Certainly, the word "hyper" seems to sum up just about everything relating to the LinkedIn story right now. That includes Jeff Weiner. After the Spazmatics cooled their guitars at the Talent Connect conference, it was time to share about another alter ego who has clearly captured Weiner's imagination and that of just about every other Internet CEO out there today: the mythic legacy of Steve Jobs. One of Weiner's first slides was that of Jobs, blown large on the stage screen, as he talked about the importance of building a quality brand that has staying power.

So far, LinkedIn has managed to deliver a whole lot better on performance expectations than some of its newly public kin. But with what some analysts deem a pricey valuation and more competitors starting to eye its turf, LinkedIn may be challenged to keep the crowds clapping as loudly as they did last week. New corporate development chief Sara Clemens will have to hit all the right notes.

Tags: acquisitions | BranchOut | CardMunch | Facebook Inc. | Groupon Inc. | IBM Corp. | IPO | IPTV | Jeffrey Weiner | Kinect | LinkedIn Corp. | LNKD | M&A | Mayfield Fund | mergers | Microsoft Corp. | Pandora Media Inc. | Rapportive | Reid Hoffman | Rick Marini | Robby Kwok | Sara Clemens | SlideShare | Viadeo | Xbox | Yahoo! Inc. | Zynga Inc.

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Suzanne Miller

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