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LinkedIn posts 3Q loss; revenue growth accelerates

By Michael Liedtke
AP Technology Writer / November 3, 2011

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SAN FRANCISCO—Online professional networking service LinkedIn got demoted by many investors after suffering its first quarterly loss in its brief career as a publicly traded company.

The third-quarter setback, announced late Thursday, didn't come as a surprise. LinkedIn's stock nevertheless dropped by more than 9 percent. That wiped out some of the paper gains rung up since the company stimulated more interest in Internet companies with a rousing initial public offering of stock nearly six months ago.

Even before the IPO, LinkedIn Corp. made it clear that short-term losses were possible as it ramped up investments in buying more computers and hiring more employees in trying to build a business that changes the way people find jobs and advance their careers.

The third quarter showed LinkedIn isn't backing off that promise. If anything, the company is preparing to up the ante. Toward that end, LinkedIn filed plans to sell an additional $100 million of its stock to fund its ambitions. LinkedIn ended September with nearly $388 million in cash.

The proposed stock sale also will give some LinkedIn employees a chance to cash in some of their holdings.

The company's investments so far appear to be paying off. Its revenue growth is still accelerating while its service is adds about 5 million new members every month.

But it evidently will take more than that to support a stock that has been flying high since LinkedIn's stock market debut. The company's shares shed $8.19 to $79.31 in Thursday's extended trading.

After LinkedIn shares were priced at $45 in the initial public offering, they quickly doubled. Investors' rabid response sparked a debate about whether another investment bubble is forming around disruptive Internet companies, similar to the late 1990s dot-com boom that set the stage for a costly meltdown.

The fervor has subsided amid mounting worries about a fragile economy, although things could be about to heat up again. Online coupon distributor Groupon Inc. is expected to make its stock market debut Friday after pricing its IPO late Thursday. Zynga Inc., the maker of popular Web games such as CityVille, may go public later this month.

LinkedIn's third-quarter results provided a reminder of the growing pains that usually accompany hard-charging businesses.

The company lost $1.6 million, or 2 cents per share, in the July-September as it invested more money to expand. That contrasted with earnings of $4 million, or 2 cents per share, at the same time last year.

The latest quarter marked the first time that LinkedIn has recorded a loss since the final three months of 2009, according to documents filed in preparation for its IPO.

If not for items unrelated to its ongoing business, LinkedIn said it would have earned 6 cents per share. On that basis, analysts polled by FactSet had expected LinkedIn to break even.

Revenue more than doubled from last year to $139 million -- about $11 million higher than analysts forecast. The company expects to generate as much as $158 million in revenue in the current quarter ending in December, up from nearly $82 million at the same time last year.

Besides impressive revenue growth, LinkedIn added 15.4 million more accounts in the quarter to end September with 131.2 million members. That may have been a slight letdown for investors, though, because LinkedIn CEO Jeff Weiner had said in early August that the company was adding an average of two members per second. That pace would have translated into LinkedIn having about 132 million members at the end of the quarter.

Since September, LinkedIn's membership has climbed to 135 million, Weiner said during a Thursday conference call. He said the LinkedIn is still adding an average of two members per second.

The company, which is based in Mountain View, remains relatively small compared with Facebook, a website where about 800 million people worldwide go to have fun. Facebook is expected to file its IPO plans next year.

LinkedIn doesn't charge people to post their resumes, but attracting more members is important because a bigger audience makes the service more compelling to employment recruiters and advertisers.

The company gets more than two-thirds of its revenue from fees it charges companies, recruiting services and other people who want broader access to the profiles and other data on the company's website. The rest comes from advertising.

LinkedIn added 282 employees during the quarter to end September with nearly 1,800.