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Why LinkedIn’s Ad Revenues Could Slow Down

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LinkedIn faces increased competition

LinkedIn’s (LNKD) Marketing Solutions business segment, which accounted for about 18% of the total company revenue in 1Q16, generates revenue from ads shown primarily on LinkedIn.com and its mobile applications. Marketing Solutions revenue rose 29% YoY (year-over-year) to $154 million in 1Q16, driven by sponsored content, which witnessed ~80% growth during the quarter. However, as depicted in the chart below, the pace of growth in this segment is slowing down.

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LinkedIn has been focusing on sponsored content and shifting away from display ads to sponsored updates. Product improvement, greater feed engagement, and customer demand is expected to drive revenue growth of this segment. However, the pace of growth could slow down on account of increased competition from Facebook (FB) and Google (GOOG). Falling ad revenue due to competition from fast-growing rivals like Facebook, Google, and Baidu (BIDU) is likely to take a toll on the company’s growth, which is a concern.

LinkedIn shuttered Lead Accelerator product

During its 4Q15 conference call, LinkedIn stated that it would shutter the Lead Accelerator product it launched in 2015 to target the B2B ad market, thereby taking a hit of $50 million in revenue. The company further stated that it would incorporate its key technology into its sponsored content throughout 2016.

LinkedIn acquired Bizo in 2014 to create a unified ad platform in order to gain traction in the B2B market and launched Lead Accelerator as a standalone offering. LinkedIn stated that “While initial demand was solid, the product required more resources than anticipated to scale.” LinkedIn now focuses more on the fast-growing sponsored updates ad product. In 1Q16, sponsored content represented approximately 56% of the Marketing Solutions revenue.

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