LinkedIn’s Display Offering No Longer A Strength

linkedinLinkedIn’s display business deteriorated during Q1 2015 and will continue to tumble, the company said during its quarterly earnings call on Thursday. While LinkedIn reported Q1 revenues of $638 million, up 35% YoY, its disappointing Q2 and full-year guidance ($670-$675 million and $2.9 billion respectively) sent shares plummeting more than 25%.

During the call, CFO Steve Sordello referred to a “secular shift away from display” as the firm’s sales force transitions to its new ad product suite.

“This reverses display’s relative strength throughout 2014, with growth declining approximately 10 percent year over year,” Sordello said. “We were particularly impacted in Europe, where the ongoing shift to programmatic advertising caused a drop in demand for our traditional display products.”

Sordello added that though display remains an important part of LinkedIn’s ad offerings, it would have a lessening impact on the firm’s business in 2015.

“Q1 was the first quarter where traditional on-site ads comprised less than 50 percent of Marketing Solutions,” he said, “a trend we expect will continue as we ramp our product suite.”

LinkedIn chalked up its bleak outlook to the negative impact of foreign currency, adjustments to operations and its pending acquisition of education tech firm, which cost the company $1.5 billion.

“This in no way changes our longer-term EPITDA margin profile in the outer periods while we’re focused on Lynda,” Sordello told investors during the call.

He added that the company is still working to bring its latest ad products – Lead Accelerator and LinkedIn Network Display, its ad network – to market.

“Last quarter, we spoke about starting to sell the new product suite and going through a major transition of training the sales force to take the suite to market,” Sordello said. “That is still ongoing, and education is still happening. We’re actually pleased [with] where we’re at – demand is strong.”

The tech behind those offerings comes from the B2B data marketing platform and exchange Bizo, which LinkedIn acquired last July for $175 million, as part of its ongoing strategy to offer full-funnel marketing.

LinkedIn’s Marketing Solutions results were sunnier, growing by 38% to hit $119 million during the quarter and accounting for 19% of total sales. According to Sordello, Sponsored Updates drove the majority of growth in the sector.

“For Marketing Solutions, in Q1, we took a significant step forward on our long-term strategic road map,” said CEO Jeff Weiner. “In February, we launched our expanded portfolio, led by LinkedIn Lead Accelerator, our first offering focused on lead-generation and relationship nurturing.”

Sponsored Updates accounted for more than 40% of LinkedIn’s Marketing Solutions sales during the quarter, up from 23% in Q1 2014. According to Sordello, LinkedIn’s auction generated a 40% lift in effective pricing YoY.

Building on last quarter’s strong user growth, LinkedIn counted 364 million users in Q1, a 23% increase YoY, which the firm chalked up to growing organic engagement. Users are increasingly accessing the platform via mobile, which now accounts for more than half of all traffic to LinkedIn.

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