Investor insight #12: LinkedIn – Mircosoft’s hidden gem.

Monday 01 March 2021

Portfolio insights, Investor insights

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The gig economy is large and growing rapidly. In 2019 it generated $250 billion worth of transactions according to research from MasterCard, and is expected to reach $455 billion by 2023. More than 60 million US workers now participate in the gig economy in some way, with the pandemic creating more white-collar freelance jobs as people and businesses embraced remote work.

Gig economy total transaction volume (USD billions)

Source: Mastercard, Swell

LinkedIn has over 740 million active users, having added more than 60 million in the last 12 months, and we believe gig economy workers represent a large untapped opportunity. As it turns out, Microsoft may think so too.

Last Friday, The Information revealed LinkedIn was developing a service for freelance workers called ‘Marketplaces’ to match white-collar freelancers with people and businesses in need of their services. Marketplaces is expected to launch in the second half of this year.

More hidden potential

LinkedIn has carved out a niche as the #1 network for professionals and benefits from network effects meaning the more users it acquires, the more value you get from being a user. As a result, it has a very wide and expanding moat.

However, unlike other social networks, LinkedIn also has multiple revenue streams. Aside from advertising, the business sells premium subscriptions (for job seekers and salespeople) and services for recruiters and HR personnel. We also see the potential to expand its education and training services into new verticals and to unlock value by facilitating B2B connections. In short, we think LinkedIn has only captured a small portion of its total addressable market.

Why aren’t more people talking about LinkedIn?

Microsoft is a big business and while LinkedIn generated $8 billion in sales last year it ranked as Microsoft’s sixth largest segment overall. In addition, Microsoft’s larger businesses such as the cloud, productivity suite, and gaming businesses are performing exceedingly well. Consequently, LinkedIn is often overlooked and therefore underappreciated by the market, making LinkedIn a true hidden Gem.

About the Author
Alex Clunies-Ross, CFA

Alex Clunies-Ross, CFA

Senior Investment Analyst

Alex commenced his career with Swell in August 2015 and has developed many of the technical models and quantitative screens used to manage Portfolio investments. He is responsible for investments in the Swell Global Portfolio and directs investment team research projects.

Alex earned the right to use the CFA designation granted by the CFA Institute in 2021. He holds a Bachelor of Commerce (Finance) from Griffith University and was an inaugural member of the Griffith University Student Investment Fund. He continues his involvement in the Fund as a student mentor.