LNKD Linkedin Corp. Class A

By Jay Greene 

LinkedIn Corp. posted solid but decelerating revenue growth in its third quarter, highlighting a key reason for its pending merger with Microsoft Corp.: market expansion.

The Mountain View, Calif., company on Thursday reported $960 million in sales, a 23% gain. In the year-earlier period, the growth rate was 37%.

"The growth continues to decelerate at a quick rate," said UBS analyst Brent Thill. "Execution hasn't been what they may have wanted and Microsoft can help invigorate that."

In a quarterly regulatory filing Thursday, the company acknowledged that it expects its growth rate to continue to decrease. That is because its sales and membership rolls have grown so large that maintaining rapid growth is unlikely.

"[Given] the large scale and critical mass of our network, we believe member and engagement growth, as measured by our key metrics, will decelerate over time and that this may impact the growth of certain portions of our business," the company said in the filing.

In June, Microsoft Corp. announced plans to buy LinkedIn for $26.2 billion, a deal that is expected to close by the end of the year.

Microsoft wants LinkedIn largely so it can weave data about LinkedIn's members into its own offerings. That way, for example, sales representatives using Microsoft's Dynamics software for managing customer relationships could pick up useful tidbits of background on potential customers from LinkedIn data.

Scenarios like that make LinkedIn's membership a key metric for the software giant. LinkedIn has 467 million members, up 18% from a year earlier, the company said. That growth helped fuel visits to the site by 106 million unique members a month in the quarter, up 6%. Member page views grew 27%.

Access to data on LinkedIn members has become an area of contention between Microsoft and rival Salesforce.com Inc., which itself had bid on LinkedIn before the professional network decided to negotiate exclusively with Microsoft. Last month, Salesforce pledged to press regulators to block the deal, arguing that it would hurt competition by giving Microsoft unfair control over LinkedIn's vast pool of data.

Salesforce CEO Marc Benioff on Wednesday reiterated concerns about too much data concentrated in Microsoft's possession. "When you're the largest software company in the world, when you're Microsoft, you need to be treated differently," Mr. Benioff said at the WSJDLive conference in Laguna Beach, Calif.

While the deal has been cleared in the U.S., Canada and Brazil, it is still under review in Europe.

In the quarter, LinkedIn's largest segment, its talent solutions division, which helps corporate recruiters identify job candidates, posted a 24% jump in revenue to $623 million as the company added customers and prior customers boosted spending.

Revenue from its marketing solutions unit rose 26% to $175 million, with about two-thirds coming from "sponsored content" or ads that appear within users' LinkedIn feeds. Those ads are among the company's fastest-growing businesses.

Revenue rose 17% in the company's third business unit, premium subscriptions, to $162 million.

Overall, LinkedIn posted a profit of $8.6 million, or 6 cents a share, in the quarter, compared with a year-earlier loss of $47.4 million, or 36 cents a share.

Excluding merger-related transaction costs and some other expenses, LinkedIn said it would have earned $1.18 a share, compared with 78 cents on that basis a year earlier. Analysts expected LinkedIn to report adjusted earnings of 91 cents a share, according to Thomson Reuters.

Revenue grew to $959.8 million from $779.6 million a year earlier. Analysts expected LinkedIn to report third-quarter revenue of $959.35 million.

Shares, which have fallen 16% this year through Thursday's close at $188.63, edged up a few cents to $188.74 in after hours trading.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

October 27, 2016 18:43 ET (22:43 GMT)

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