LinkedIn Could Find Cracking China Market Easier Than Google or Facebook

LinkedIn (NYSE:LNKD) could be in talks with major Internet companies in China, according to reports, ^[1] with plans to enter the lucrative Chinese Internet market. But after what has happened to Google (NASDAQ:GOOG) and Facebook in the country, this could be a risky move and is far from certain. LinkedIn’s success will depend on how it deals with intense competition from Chinese incumbents, as well as the degree of censorship it is willing to concede to the regulatory bodies in China.
See our complete analysis for LinkedIn’s stock here

LinkedIn Might Have it Easier Than Google, Facebook

The nature of LinkedIn’s business may make it easier for the company to pacify the Chinese government. Both Facebook and Google have a fundamental similarity of striving to make the web more open on a global scale. While Google does this with its all-encompassing search engine, Facebook has shown that its social network can play a big role in mobilizing people for a cause, which has been exemplified in the Arab Spring political movements. This online freedom is the precise reason why China has opposed these companies’ presence on its soil without certain concessions, given that the country ranks 174 out of 179 countries in the Press Freedom Index for 2011-12. ^[2]

LinkedIn, however, is strictly in the professional networking business, and its presence in China would mean connecting Chinese employers to a predominantly Chinese subscriber base. This may not worry the Chinese government to the extent of completely blocking the site. However, given LinkedIn’s U.S. roots, the company’s flow of information will be thoroughly monitored and scrutinized, and this control may extend to the kind of advertisements that show up on the site. A positive sign is that other companies like Microsoft have navigated these waters with its partnership with Baidu.

Competition is the Key Challenge

China has been known for its highly successful domestic variants of foreign Internet companies that have very well leveraged the country’s scale and are in tune with local preferences and tastes. The key examples are Baidu in web search, and QZone and RenRen in social networking.

Professional networking is not an exception either, with a host of incumbent Chinese players like Tianji.com and Wealink.com. Tianji has a subscriber base of around 9 million as of 2011 and plans to reach 35 million by 2013. ^[3] In addition, these incumbents already have a dedicated team that handles censorship-related matters with the Chinese government, an area where LinkedIn lacks the necessary experience. This means that the barriers to LinkedIn’s entry would be driven more by competition than by censorship worries.

We currently have a price estimate of $39 for LinkedIn’s stock, which is well below the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. LinkedIn Reportedly in Talks to Enter China, ZDNet, 15th Feb 2012 [↩]
2. Press Freedom Index 2011/2012, Reporters Without Borders [↩]
3. Tianji kickstarts professional social networking in China, Venture Beat, 31st Oct 2011 [↩]