LinkedIn plans to scrap its ad network business as it lacks sufficient resources to scale it out.
LinkedIn plans to channel more resources to grow its Sponsored Content business which grew 85% during the last quarter.
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How is this move likely to impact on the company’s marketing business and on LinkedIn stock?
After LinkedIn stock cratered 45% in a single day of trading post Q4 2015 earnings, trying to say anything bearish about the company right now might sound like flogging a dead horse. But LinkedIn (NYSE:LNKD) is an intriguing tech company because it sports a rather unusual business model that is worth a second look. Unlike other leading social media powerhouses such as Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) who rely very heavily on ad revenue to drive their top lines, LinkedIn’s ad business, Marketing Solutions, is just a small part of the company since it contributes just 21% to the company’s revenue. In sharp contrast, ad revenue contributes more than 90% to Facebook’s and Twitter’s top lines.
LinkedIn’s subscription-based Talent Solutions business is the company’s main lifeline contributing 65% of its revenue.