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LinkedIn's stock surges, setting the tone for social media

Managers of LinkedIn celebrate as the company goes public in May, 2011.

Shares of professional-networking website LinkedIn surged Friday, jumping 18 percent, after the company reported quarterly sales that more than doubled and passed a major milestone, chalking up 150 million registered users worldwide.

Michael Graham, an Internet analyst at Canaccord Genuity, raised his earnings estimate for the company, writing in a research note that LinkedIn has taken “another step on the path toward becoming the default global hiring solution.”

The growth in users cements LinkedIn’s position as the largest professional network on the Internet. The company’s performance and outlook is keenly watched by investors as an indication of whether the business model of Internet companies is solid -- especially in light of Facebook’s filing for an IPO last week.

Facebook’s public offering looks set to be one of the largest and most talked about in recent memory and follows public offerings from other companies in the social media space, including Groupon, Pandora, Zynga and LinkedIn.

Started in the living room of ex-PayPal executive Reid Hoffman in 2002 and officially launched in May 2003, LinkedIn is similar to Facebook in that it connects people but it is much smaller and is geared towards professionals.

It makes money by selling premium subscriptions to its members and by helping companies with hiring and marketing. Its services are also used by professionals seeking jobs or contacts.

Speaking on CNBC Friday about his company’s strong quarter, LinkedIn’s CEO Jeff Weiner said the company is able to grow in any economic environment.

“When times get tough, when there’s macroeconomic uncertainty, we see a number of people turning to LinkedIn, specifically turning to their networks, specifically for job security,” he said. “But by the same token when the economy starts to improve and recruiting starts to pick up that benefits the hiring solutions business.”

The Mountain View, Calif.-based company said it saw double-digit revenue growth in its subscription base in the fourth quarter and its marketing solutions, while revenue from its hiring solutions product showed triple-digit revenue growth.

Shares of LinkedIn are up 41 percent so far this year, outperforming the Standard & Poor's 500, which has grown 7 percent. But not every new tech company in the recent rash of social media IPOs has performed as well.

Earlier this week, daily deals website Groupon surprised Wall Street by failing to make a profit since becoming a publicly-traded company in late 2011. It saw a fourth-quarter net loss of $42.7 million. That’s better than one year ago, when it saw a loss of $378.6 million, but still disappointing to analysts who had expected a small profit.

Shares of Groupon are essentially flat for the year.

Canaccord Genuity’s Graham cautions that LinkedIn could face threats in the future. Facebook and Google+ have not made significant moves into LinkedIn’s business, but were they to do so it could hurt LinkedIn’s growth and profitability, he said.

Also, given that LinkedIn has penetrated a majority of the U.S. market for knowledge workers, the company is dependent upon international markets for the majority of its member growth. If LinkedIn is unable to roll out strong local-language sites at a rapid enough pace, or if potential international members don't find the service compelling, member growth could stall, Graham said.

Reuters contributed to this report.

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