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EX-31.2 - CERTIFICATION OF PFO REQUIRED UNDER RULE 13A-14(A) AND 15D-14(A) - LINKEDIN CORPlnkd-exhibit312x6302015x10q.htm
EX-31.1 - CERTIFICATION OF PEO REQUIRED UNDER RULE 13A-14(A) AND 15D-14(A) - LINKEDIN CORPlnkd-exhibit311x6302015x10q.htm
EX-32.1 - CERTIFICATION OF PEO AND PFO REQUIRED UNDER RULE 13A-14(B) - LINKEDIN CORPlnkd-exhibit321x6302015x10q.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number: 001-35168
 
 
 
LinkedIn Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
47-0912023
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2029 Stierlin Court
Mountain View, CA 94043
(Address of principal executive offices and zip code)
(650) 687-3600
(Registrant’s telephone number, including area code)
 
 
 
 
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  T    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  T    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
T
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of July 23, 2015, there were 114,707,936 shares of the Registrant’s Class A common stock outstanding and 15,651,587 shares of the Registrant’s Class B common stock outstanding.
 




LINKEDIN CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
  
 
Page No.
 
 
 
 
 
 
 
 
 

2


Part I. Financial Information
Item 1. Financial Statements
LINKEDIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
450,991

 
$
460,887

Marketable securities
2,582,435

 
2,982,422

Accounts receivable (net of allowance for doubtful accounts of $11,410 and $11,944 at June 30, 2015 and December 31, 2014, respectively)
449,500

 
449,048

Deferred commissions
58,585

 
66,561

Prepaid expenses
75,669

 
52,978

Other current assets
118,718

 
110,204

Total current assets
3,735,898

 
4,122,100

Property and equipment, net
793,034

 
740,909

Goodwill
1,492,972

 
356,718

Intangible assets, net
456,233

 
131,275

Other assets
78,645

 
76,255

TOTAL ASSETS
$
6,556,782

 
$
5,427,257

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
109,715

 
$
100,297

Accrued liabilities
256,958

 
260,189

Deferred revenue
629,671

 
522,299

Total current liabilities
996,344

 
882,785

CONVERTIBLE SENIOR NOTES, NET
1,104,010

 
1,081,553

DEFERRED TAX LIABILITIES
55,100

 

OTHER LONG-TERM LIABILITIES
180,101

 
132,100

Total liabilities
2,335,555

 
2,096,438

COMMITMENTS AND CONTINGENCIES (Note 12)

 

REDEEMABLE NONCONTROLLING INTEREST
25,784

 
5,427

STOCKHOLDERS’ EQUITY (Note 13):
 
 
 
Class A and Class B common stock
13

 
13

Additional paid-in capital
4,268,731

 
3,285,705

Accumulated other comprehensive loss
(2,877
)
 
(198
)
Accumulated earnings (deficit)
(70,424
)
 
39,872

Total stockholders’ equity
4,195,443

 
3,325,392

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
$
6,556,782

 
$
5,427,257

See Notes to Condensed Consolidated Financial Statements

3


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net revenue
$
711,735

 
$
533,877

 
$
1,349,422

 
$
1,007,070

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
100,086

 
69,536

 
188,492

 
131,991

Sales and marketing
261,271

 
184,494

 
490,907

 
351,016

Product development
190,133

 
128,731

 
355,713

 
249,353

General and administrative
142,389

 
80,688

 
239,702

 
155,306

Depreciation and amortization
99,004

 
56,306

 
172,976

 
106,046

Total costs and expenses
792,883

 
519,755

 
1,447,790

 
993,712

Income (loss) from operations
(81,148
)
 
14,122

 
(98,368
)
 
13,358

Other income (expense), net:
 
 
 
 
 
 
 
Interest income
2,017

 
1,329

 
4,002

 
2,335

Interest expense
(12,694
)
 

 
(25,291
)
 

Other, net
(1,723
)
 
(132
)
 
(5,758
)
 
(112
)
Other income (expense), net
(12,400
)
 
1,197

 
(27,047
)
 
2,223

Income (loss) before income taxes
(93,548
)
 
15,319

 
(125,415
)
 
15,581

Provision (benefit) for income taxes
(26,048
)
 
16,253

 
(15,476
)
 
29,834

Net loss
(67,500
)
 
(934
)
 
(109,939
)
 
(14,253
)
Accretion of redeemable noncontrolling interest
(248
)
 
(100
)
 
(357
)
 
(226
)
Net loss attributable to common stockholders
$
(67,748
)
 
$
(1,034
)
 
$
(110,296
)
 
$
(14,479
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.53
)
 
$
(0.01
)
 
$
(0.87
)
 
$
(0.12
)
Diluted
$
(0.53
)
 
$
(0.01
)
 
$
(0.87
)
 
$
(0.12
)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
128,241

 
122,170

 
126,864

 
121,571

Diluted
128,241

 
122,170

 
126,864

 
121,571

See Notes to Condensed Consolidated Financial Statements

4


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(67,500
)
 
$
(934
)
 
$
(109,939
)
 
$
(14,253
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in unrealized gains on investments, net of tax
(244
)
 
181

 
159

 
549

Change in unrealized loss on cash flow hedges, net of tax
(3,734
)
 

 
(2,851
)
 

Change in foreign currency translation adjustment
16

 

 
13

 

Total other comprehensive income (loss)
(3,962
)
 
181

 
(2,679
)
 
549

Comprehensive loss
(71,462
)
 
(753
)
 
(112,618
)
 
(13,704
)
Accretion of redeemable noncontrolling interest
(248
)
 
(100
)
 
(357
)
 
(226
)
Comprehensive loss attributable to common stockholders
$
(71,710
)
 
$
(853
)
 
$
(112,975
)
 
$
(13,930
)
See Notes to Condensed Consolidated Financial Statements

5


LINKEDIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended
June 30,
 
2015
 
2014
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(109,939
)
 
$
(14,253
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
172,976

 
106,046

Provision for doubtful accounts and sales returns
5,075

 
5,325

Amortization of investment premiums, net
10,515

 
5,847

Amortization of debt discount and transaction costs
22,511

 

Stock-based compensation
248,600

 
142,597

Excess income tax benefit from stock-based compensation

 
(34,621
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
7,602

 
(50,226
)
Deferred commissions
8,602

 
1,828

Prepaid expenses and other assets
(36,586
)
 
(22,044
)
Accounts payable and other liabilities
15,234

 
6,298

Income taxes, net
(17,247
)
 
21,290

Deferred revenue
63,431

 
89,207

Net cash provided by operating activities
390,774

 
257,294

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(162,583
)
 
(185,301
)
Purchases of investments
(1,087,055
)
 
(1,387,542
)
Sales of investments
579,861

 
189,598

Maturities of investments
899,955

 
997,275

Payments for intangible assets and acquisitions, net of cash acquired
(654,842
)
 
(89,861
)
Changes in deposits and restricted cash
(3,259
)
 
(4,761
)
Net cash used in investing activities
(427,923
)
 
(480,592
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of preferred shares in joint venture
20,000

 

Proceeds from issuance of common stock from employee stock options
11,921

 
12,906

Proceeds from issuance of common stock from employee stock purchase plan
20,799

 
16,324

Excess income tax benefit from stock-based compensation

 
34,621

Repurchases of equity awards
(22,450
)
 

Other financing activities
(167
)
 
24

Net cash provided by financing activities
30,103

 
63,875

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(2,850
)
 
1,426

CHANGE IN CASH AND CASH EQUIVALENTS
(9,896
)
 
(157,997
)
CASH AND CASH EQUIVALENTS—Beginning of period
460,887

 
803,089

CASH AND CASH EQUIVALENTS—End of period
$
450,991

 
$
645,092

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Purchases of property and equipment recorded in accounts payable and accrued liabilities
$
36,002

 
$
40,123

Issuance of Class A common stock and stock options for business combinations
$
694,209

 
$
50,168

See Notes to Condensed Consolidated Financial Statements

6


LINKEDIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
Description of Business and Basis of Presentation
LinkedIn Corporation and its subsidiaries (the “Company”), a Delaware corporation, was incorporated on March 6, 2003. The Company operates an online professional network on the Internet through which the Company’s members are able to create, manage and share their professional identities online, build and engage with their professional networks, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful. The Company believes it is the most extensive, accurate and accessible network focused on professionals.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 12, 2015.
The condensed consolidated balance sheet as of December 31, 2014, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP on an annual reporting basis.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2015 or any future period.
 
Principles of Consolidation
The condensed consolidated financial statements include the Company, its wholly-owned subsidiaries, and variable interest entities in which LinkedIn is the primary beneficiary in accordance with the consolidation accounting guidance. All intercompany balances and transactions have been eliminated.
Redeemable noncontrolling interest is included in the condensed consolidated balance sheets. Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported outside of permanent equity equal to its redemption value as of the balance sheet date.

 Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates. 
 
Recently Issued Accounting Guidance
Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance on simplifying the presentation of debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard requires retrospective adoption and will be effective for the Company beginning in its first quarter of 2016; however, the Company plans to elect to early adopt in the fourth quarter of 2015. The Company does not expect this standard to have a material impact on its financial statements.

7


Derivatives and Hedging
In November 2014, the FASB issued new authoritative guidance on determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. The guidance applies to hybrid financial instruments that include embedded derivative features, which must be evaluated to determine whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to the host contract. If the host contract is akin to equity, then equity-like features (for example, a conversion option) are considered clearly and closely related to the host contract and, thus, would not be separated from the host contract. If the host contract is akin to debt, then equity-like features are not considered clearly and closely related to the host contract. In the latter case, an entity may be required to separate the equity-like embedded derivative feature from the debt host contract if certain other criteria are met. Similarly, debt-like embedded derivative features may require separate accounting from an equity-like host contract. The standard will be effective for the Company in the first quarter of 2016; however, the Company may elect to early adopt. The Company is currently evaluating whether this standard will have a material impact on its financial statements.
Revenue Recognition
In May 2014, the FASB issued new authoritative guidance on revenue from contracts with customers. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." The guidance also requires significantly expanded disclosures about revenue recognition. In July 2015, the FASB voted to approve a one-year deferral of the effective date to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. This standard will therefore be effective for the Company in the first quarter of 2018. This standard will be applied using either the full or modified retrospective adoption methods. The Company is currently evaluating adoption methods and whether this standard will have a material impact on its financial results.



8


2.
Fair Value Measurements

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of the periods presented, are summarized as follows (in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
June 30, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
230,631

 
$

 
$

 
$
230,631

Commercial paper

 
51,584

 

 
51,584

U.S. agency securities

 
23,200

 

 
23,200

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
115,332

 

 
115,332

Certificates of deposit

 
3,476

 

 
3,476

U.S. treasury securities
944,728

 

 

 
944,728

U.S. agency securities

 
772,642

 

 
772,642

Corporate debt securities

 
733,158

 

 
733,158

Municipal securities

 
13,099

 

 
13,099

Other current assets:
 
 
 
 
 
 
 
Foreign currency derivative contracts

 
4,066

 

 
4,066

Total assets
$
1,175,359

 
$
1,716,557

 
$

 
$
2,891,916

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Foreign currency derivative contracts
$

 
$
7,328

 
$

 
$
7,328

Total liabilities
$

 
$
7,328

 
$

 
$
7,328

December 31, 2014:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
95,470

 
$

 
$

 
$
95,470

Commercial paper

 
54,344

 

 
54,344

U.S. treasury securities
54,349

 

 

 
54,349

U.S. agency securities

 
43,000

 

 
43,000

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
122,371

 

 
122,371

Certificates of deposit

 
5,927

 

 
5,927

U.S. treasury securities
1,234,568

 

 

 
1,234,568

U.S. agency securities

 
881,962

 

 
881,962

Corporate debt securities

 
722,705

 

 
722,705

Municipal securities

 
14,889

 

 
14,889

Other current assets:
 
 
 
 
 
 
 
Foreign currency derivative contracts

 
5,591

 

 
5,591

Total assets
$
1,384,387

 
$
1,850,789

 
$

 
$
3,235,176

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Foreign currency derivative contracts
$

 
$
149

 
$

 
$
149

Total liabilities
$

 
$
149

 
$

 
$
149

 

9


The fair value of the Company's Level 1 financial instruments is based on quoted market prices in active markets for identical instruments. The fair value of the Company's Level 2 fixed income securities is obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from the Company's pricing service against fair values obtained from another independent source. The fair value of the Company's Level 2 foreign currency derivative contracts is obtained from pricing models that use observable market inputs.

See Note 9, Convertible Senior Notes, for the carrying amount and estimated fair value of the Company's convertible senior notes, which are not recorded at fair value as of June 30, 2015.    


3.
Acquisitions and Joint Venture
lynda.com
On May 14, 2015, LinkedIn completed its acquisition of lynda.com, Inc. ("lynda.com"), a Carpinteria, California-based privately held online learning company teaching business, technology and creative skills to help people achieve their professional goals. LinkedIn's purchase price of approximately $1.5 billion for all the outstanding shares of capital stock of lynda.com will consist of approximately $778.5 million in cash and 3,569,380 shares of LinkedIn Class A common stock. LinkedIn also issued 178,763 stock options related to assumed lynda.com equity awards. The fair value of the earned portion of assumed stock options of $11.5 million is included in the purchase price, with the remaining fair value of $18.6 million representing post-acquisition compensation expense that will be recognized over the requisite service period of approximately three years from the date of acquisition. LinkedIn accelerated the vesting of and settled in cash the stock options for non-continuing employees and recognized $22.4 million in stock-based compensation expense immediately. A portion of the consideration was placed in escrow to satisfy certain indemnification obligations of the former lynda.com stockholders as described in the Merger Agreement.
The following table presents the components of the preliminary purchase consideration transferred based on the closing price of $194.49 per share of LinkedIn's Class A common stock (in thousands):

Cash
$
778,478

Class A common stock
694,209

Earned portion of the assumed stock options
11,533

Other consideration
2,757

Purchase consideration
$
1,486,977



10


The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on the fair value on the acquisition date. The fair value of assets acquired and liabilities assumed from the acquisition of lynda.com is based on a preliminary valuation and, as such, the Company's estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to income taxes and the valuation of acquired assets and assumed liabilities. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in its condensed consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
The results of operations of lynda.com are included in the consolidated financial statements from the date of acquisition. The Company has recognized $17.6 million in revenue and net loss of $36.7 million related to its acquisition of lynda.com in the three and six months ended June 30, 2015. The net loss related to lynda.com includes tax-effected one-time charges of approximately $19.4 million, and does not include expenses that have already been integrated with LinkedIn, such as certain expenses related to benefits. The Company also recognized transaction costs of approximately $1.6 million, which is included in general and administrative expense in its condensed consolidated statements of operations for the three and six months ended June 30, 2015. The following table presents the preliminary purchase price allocation recorded in the Company's consolidated balance sheets for lynda.com as of the acquisition date (in thousands):
 
 
 
Preliminary estimated useful life
 
Cash
$
136,109

 
 
 
Accounts receivable
9,996

 
 
 
Prepaid expenses
3,986

 
 
 
Other current assets
153

 
 
 
Property and equipment
16,239

 
3 years
(5) 
Goodwill (1)
1,128,189

 
 
 
Definite-lived intangible assets:
 
 
 
 
Subscriber relationships - Enterprise
164,000

 
4 years
 
Subscriber relationships - Individual
57,000

 
2 years
 
Content (2)
98,000

 
3 years
 
Developed technology
39,000

 
2 years
 
     Trade name
1,000

 
1 year
 
Other assets
389

 
 
 
Accounts payable
(8,622
)
 
 
 
Accrued liabilities
(13,716
)
 
 
 
Deferred revenue (3)
(46,994
)
 
 
 
Deferred tax liabilities
(82,965
)
 
 
 
Other long-term liabilities (3)
(14,787
)
 
 
 
Total purchase price (4)
$
1,486,977

 
 
 
____________
(1)
The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired. The goodwill in this transaction is primarily attributable to expected operating synergies, which include the lynda.com talent and their production process, the Learning & Development (“L&D”) opportunities to strengthen the skills of LinkedIn's members, as well as the L&D initiatives that the talent of lynda.com and LinkedIn will jointly develop. These attributes position the Company to be able to further expand its long-term content strategy and to realize its vision of building the world's first economic graph. None of the goodwill is expected to be deductible for tax purposes.
(2)
The amortization method for the content intangible asset is 50% the first year, 30% the second year, and 20% in the third year. The remaining definite-lived intangible assets are amortized using the straight-line method.
(3)
Other long-term liabilities include $2.8 million of long-term deferred revenue. Total deferred revenue of $49.9 million is expected to be amortized approximately 80% in 2015 and approximately 20% thereafter.

11


(4) Subject to adjustment based on (i) purchase price adjustment provisions contained in the acquisition agreement and (ii) indemnification obligations of the acquired company stockholders.
(5)
Represents an average estimated life.
The results of operations of lynda.com are included in the consolidated financial statements from the date of acquisition. The Company has recognized $17.6 million in revenue related to its acquisition of lynda.com.
Supplemental information on an unaudited pro forma basis, as if the acquisition of lynda.com had been consummated on January 1, 2014, is presented as follows (in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
738,848

 
$
568,029

 
$
1,418,872

 
$
1,069,915

Net loss attributable to common stockholders
(74,413
)
 
22,399

 
(135,803
)
 
(61,018
)
Net loss per share attributable to common stockholders - diluted
$
(0.57
)
 
$
(0.18
)
 
$
(1.05
)
 
$
(0.49
)

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily indicative of the Company's consolidated results of operations in future periods or the results that actually would have been realized had the companies operated on a combined basis during the periods presented. The pro forma results include adjustments primarily related to amortization of intangible assets, accelerated vesting of options for non-continuing employees, and stock-based compensation expenses for assumed unearned equity awards.
Other acquisitions
LinkedIn completed four other acquisitions during the six months ended June 30, 2015 for a total purchase price of $17.3 million, which consisted of $11.6 million in cash and 22,898 shares of LinkedIn Class A common stock. These acquisitions have been accounted for as business combinations under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition dates. The results of operations of these acquisitions have been included in the consolidated financial statements from the date of each respective acquisition. The following table presents the purchase price allocations recorded in the Company's condensed consolidated balance sheets as of the acquisition dates (in thousands):

 
 
Other Acquisitions
Goodwill (1)
 
$
8,054

Intangible assets (2)
 
5,231

Net tangible assets
 
4,031

Total purchase price (3) 
 
$
17,316

 _______________________
(1)
The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired. The goodwill in this transaction is primarily attributable to expected operational synergies, the assembled workforce, and the future development initiatives of the assembled workforce. None of the goodwill is expected to be deductible for tax purposes.
(2)
Identifiable definite-lived intangible assets were comprised of developed technology of $5.2 million with an estimated useful life of 2.0 years, which will be amortized on a straight-line basis over the estimated useful lives.
(3)
Subject to adjustment based on (i) purchase price adjustment provisions contained in the acquisition agreements and (ii) indemnification obligations of the acquired company stockholders.

Joint Venture
On November 3, 2013, the Company entered into an agreement to create LinkedIn CN Limited, a joint venture (“JV”) with Dragon Networking, an affiliate of China Broadband Capital, and SCCV IV Success HoldCo, Ltd., an affiliate of Sequoia Capital, (collectively, the “Partners”) to engage in the investment, organization, management and

12


operation of a professional social network in the People’s Republic of China (“PRC”). In the second quarter of 2015, the Partners contributed an additional $20.0 million in cash in exchange for equity interests in the form of preferred shares ("Second Closing"). As a result, the Company and the Partners own approximately 65% and 25% of the outstanding equity interests in the JV, respectively, with the remaining 10% related to authorized stock options of the JV, as of June 30, 2015. In the fourth quarter of 2013, the Partners had contributed $5.0 million in cash in exchange for 7% of the outstanding equity interests in the form of preferred shares.
The preferred shares may be callable or puttable, generally at fair value, subject to a floor and cap, following the fifth anniversary of the Second Closing or at the occurrence of certain events.
The Company has determined it is the primary beneficiary of the JV due to the percentage ownership as well as the power to direct the activities that most significantly impact the JV's economic performance. Furthermore, the Company has the right to receive benefits and obligation to absorb losses from the entity. The liabilities of the JV are recourse solely to the JV’s assets, except for as it relates to a guarantee made by the Company to the JV in the event that the JV cannot fulfill the liability resulting from the exercise of the put right by the Partners.
The noncontrolling interest in the JV is classified outside of permanent equity in the Company’s consolidated balance sheet as of June 30, 2015, as the preferred shares include a put right available to the noncontrolling interest holders in the future. Net income attributable to common stockholders on the Company's condensed consolidated statements of operations includes the accretion of the RNCI to its redemption value.



13


4.
Cash and Investments
The following table presents cash, cash equivalents, and available-for-sale investments for the periods presented (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Market
Value
June 30, 2015:
 
 
 
 
 
 
 
Cash
$
145,576

 
$

 
$

 
$
145,576

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
230,631

 

 

 
230,631

Commercial paper
51,579

 
5

 

 
51,584

U.S. agency securities
23,200

 

 

 
23,200

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
115,303

 
31

 
(2
)
 
115,332

Certificates of deposit
3,475

 
1

 

 
3,476

U.S. treasury securities
944,605

 
162

 
(39
)
 
944,728

U.S. agency securities
772,472

 
216

 
(46
)
 
772,642

Corporate debt securities
733,471

 
160

 
(473
)
 
733,158

Municipal securities
13,099

 
2

 
(2
)
 
13,099

Total cash, cash equivalents, and marketable securities
$
3,033,411

 
$
577

 
$
(562
)
 
$
3,033,426

December 31, 2014:
 
 
 
 
 
 
 
Cash
$
213,724

 
$

 
$

 
$
213,724

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
95,470

 

 

 
95,470

Commercial paper
54,340

 
4

 

 
54,344

U.S. treasury securities
54,349

 

 

 
54,349

U.S. agency securities
42,999

 
1

 

 
43,000

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
122,345

 
33

 
(7
)
 
122,371

Certificates of deposit
5,925

 
2

 

 
5,927

U.S. treasury securities
1,234,870

 
64

 
(366
)
 
1,234,568

U.S. agency securities
881,843

 
393

 
(274
)
 
881,962

Corporate debt securities
723,412

 
225

 
(932
)
 
722,705

Municipal securities
14,893

 
4

 
(8
)
 
14,889

Total cash, cash equivalents, and marketable securities
$
3,444,170

 
$
726

 
$
(1,587
)
 
$
3,443,309


The following table presents available-for-sale investments by contractual maturity date (in thousands) as of June 30, 2015:
 
Amortized
Cost
 
Estimated Fair Market Value
Due in one year or less
$
2,059,253

 
$
2,059,527

Due after one year through three years
523,172

 
522,908

Total
$
2,582,425

 
$
2,582,435






5.
Derivative Instruments
The Company has operations in the United States and internationally and transacts business in multiple currencies, which exposes it to foreign currency exchange rate risk. The Company enters into foreign currency derivative contracts with financial institutions to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company’s program is not designated for trading or speculative purposes.

These derivative instruments expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company seeks to mitigate this credit risk by transacting with major financial institutions with high credit ratings. In addition, the Company generally enters into master netting arrangements, which mitigate credit risk by permitting net settlement of transactions with the same counterparty. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments.

Cash Flow Hedges
Beginning in the first quarter of 2015, the Company uses foreign currency derivative contracts designated as cash flow hedges to hedge forecasted revenue transactions denominated in currencies other than the U.S. dollar. The Company's cash flow hedges consist of forward and option contracts with maturities of 12 months or less.

The Company evaluates the effectiveness of its cash flow hedges on a quarterly basis. Effectiveness represents a derivative instrument's ability to generate offsetting changes in cash flows related to the hedged risk. The Company records the gains or losses, net of tax, related to the effective portion of its cash flow hedges as a component of accumulated other comprehensive income (loss) ("AOCI") in stockholders' equity and subsequently reclassifies the gains or losses into revenue when the underlying hedged revenue is recognized. The Company records the gains or losses related to the ineffective portion of the cash flow hedges, if any, immediately in other income (expense), net. The change in time value related to the Company's cash flow hedges is excluded from the assessment of hedge effectiveness and is recorded immediately in other income (expense), net. If the hedged transaction becomes probable of not occurring, the corresponding amounts in AOCI would immediately be reclassified as ineffectiveness to other income (expense), net. Cash flows related to the Company's cash flow hedging program are recognized as cash flows from operating activities in its statements of cash flows.

As of June 30, 2015, the Company had outstanding cash flow hedges with a total notional amount of $295.0 million.

Balance Sheet Hedges
The Company uses foreign currency derivative contracts not designated as hedging instruments (“balance sheet hedges”) to reduce the exchange rate risk associated with its foreign currency denominated monetary assets and liabilities. These balance sheet hedges are marked-to-market at the end of each reporting period and the related gains and losses are recognized in other income (expense), net.

As of June 30, 2015 and December 31, 2014, the Company had outstanding balance sheet hedges with a total notional amount of $218.4 million and $190.1 million, respectively.

Fair Value of Foreign Currency Derivatives
The foreign currency derivative contracts that were not settled at the end of the period are recorded at fair value, on a gross basis, in the condensed consolidated balance sheets. The following table presents the fair value of the Company’s foreign currency derivative contracts as of the periods presented (in thousands):



 
June 30,
2015
 
December 31,
2014
Derivative assets:
 
 
 
Cash flow hedges
$
3,143

 
$

Balance sheet hedges
923

 
5,591

     Total derivative assets
4,066

 
5,591

Derivative liabilities:
 
 
 
Cash flow hedges
2,861

 

Balance sheet hedges
4,467

 
149

     Total derivative liabilities
7,328

 
149

Total fair value of derivative instruments
$
(3,262
)
 
$
5,442


See Note 2, Fair Value Measurements, for additional information related to the fair value of the Company’s foreign currency derivative contracts.    

Financial Statement Effect of Foreign Currency Derivative Contracts

The following table presents the activity of the Company’s cash flow hedges in AOCI in stockholders' equity for the period presented (1) (in thousands):
 
December 31,
2014
 
Amount of loss recognized in other comprehensive income before tax effect (effective portion)
 
Amount of loss reclassified from AOCI to net revenue (effective portion)
 
June 30,
2015
Cash flow hedges

 
(4,191
)
 
934

 
$
(3,257
)
__________
(1)    The Company did not have any cash flow hedges in the prior period.

The amount recognized in earnings related to the ineffective portion of the Company's cash flow hedges was insignificant for the quarter. The Company excluded $2.4 million in changes in fair value related to its cash flow hedges from its assessment of hedge effectiveness.

As of June 30, 2015, the Company estimates approximately $3.3 million of net derivative losses related to our cash flow hedges will be reclassified from AOCI into earnings within the next 12 months.

The following table presents the impact of the Company’s foreign currency derivative contracts on the condensed consolidated statement of operations for the periods presented (in thousands):
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location
 
2015
 
2014
 
2015
 
2014
Cash flow hedges
Net revenue
 
$
(934
)
 
$

 
$
(934
)
 
$

Balance sheet hedges
Other income (expense), net
 
(5,491
)
 
(1,820
)
 
5,719

 
(2,223
)
Total gain (loss) from foreign currency derivative contracts
 
 
$
(6,425
)
 
$
(1,820
)
 
$
4,785

 
$
(2,223
)





6.
Property and Equipment
The following table presents the detail of property and equipment, net, for the periods presented (in thousands): 
 
June 30,
2015
 
December 31,
2014
Land
$
179,436

 
$
179,232

Computer equipment
569,660

 
489,763

Software
51,155

 
47,157

Capitalized website, internal-use software, and production costs
169,274

 
131,182

Furniture and fixtures
80,531

 
64,180

Leasehold improvements
286,113

 
235,845

Total
1,336,169

 
1,147,359

Less accumulated depreciation and amortization
(543,135
)
 
(406,450
)
Property and equipment, net
$
793,034

 
$
740,909


 
7.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is generally not deductible for tax purposes. The following table presents the goodwill activity for the periods presented (in thousands):
Goodwill—December 31, 2014
$
356,718

lynda.com acquisition
1,128,189

Other acquisitions
8,054

Foreign exchange
11

Goodwill—June 30, 2015
$
1,492,972





Other Intangible Assets
The following table presents the detail of other intangible assets for the periods presented (dollars in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Weighted-
Average
Remaining
Life (1)
June 30, 2015:
 
 
 
 
 
 
 
Developed technology
$
157,690

 
$
(59,054
)
 
$
98,636

 
1.8 years
Trade name
8,000

 
(6,375
)
 
1,625

 
0.9 years
Patents
55,266

 
(7,558
)
 
47,708

 
9.9 years
Customer and subscriber relationships
226,100

 
(10,619
)
 
215,481

 
3.4 years
Content (2)
98,000

 
(6,125
)
 
91,875

 
2.3 years
Other intangible assets
4,130

 
(3,222
)
 
908

 
0.6 years
Total
$
549,186

 
$
(92,953
)
 
$
456,233

 
3.5 years
December 31, 2014:
 
 
 
 
 
 
 
Developed technology
$
113,466

 
$
(37,936
)
 
$
75,530

 
2.2 years
Trade name
7,000

 
(5,203
)
 
1,797

 
1.0 year
Patents
53,256

 
(5,046
)
 
48,210

 
10.3 years
Customer relationships
5,100

 
(1,161
)
 
3,939

 
2.6 years
Other intangible assets
4,152

 
(2,353
)
 
1,799

 
0.9 years
Total
$
182,974

 
$
(51,699
)
 
$
131,275

 
5.2 years
 __________________
(1)
The weighted-average remaining life of other intangible assets excludes the impact of $0.4 million in indefinite-lived intangible assets, which consists of domain names, as of June 30, 2015 and December 31, 2014.
(2)
The amortization method for the content intangible asset is 50% the first year, 30% the second year, and 20% in the third year. The remaining definite-lived intangible assets are amortized using the straight-line method.

Amortization expense for the three months ended June 30, 2015 and 2014 was $29.5 million and $7.2 million, respectively, and $41.3 million and $12.0 million for the six months ended June 30, 2015 and 2014, respectively. Estimated amortization expense of purchased intangible assets for future periods as of June 30, 2015 is as follows (in thousands):
Year Ending December 31,
Amortization expense
Remainder of 2015
$
92,021

2016
165,304

2017
99,843

2018
53,455

2019
20,332

Thereafter
24,857

Total
$
455,812

 
8.
Accrued Liabilities
The following table presents the detail of accrued liabilities as of the periods presented (in thousands):
 
June 30,
2015
 
December 31,
2014
Accrued vacation and employee-related expenses
$
128,616

 
$
88,100

Accrued incentives
36,765

 
69,583

Accrued commissions
30,573

 
59,357

Accrued sales tax and value-added taxes
15,820

 
11,249

Other accrued expenses
45,184

 
31,900

Total
$
256,958

 
$
260,189


9.
Convertible Senior Notes
On November 12, 2014, the Company issued $1,322.5 million aggregate principal amount of convertible senior notes (the “Notes”). The total net proceeds from this offering were $1,305.3 million, after deducting the initial purchasers’ discount and debt issuance costs.

18


The Notes are governed by an indenture between the Company, as the issuer, and U.S. Bank National Association, as Trustee. The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company. The Notes mature on November 1, 2019, unless converted, and bear interest at a rate of 0.50% payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2015.
The Notes are convertible at an initial conversion rate of 3.3951 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $294.54 per share of common stock.
Holders may convert their notes under the following circumstances:

during any calendar quarter beginning after the calendar quarter ending on March 31, 2015 (and only during such calendar quarter), if, for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter the last reported sale price of the Company’s Class A common stock is greater than or equal to 130% of the conversion price;
during the five business day period after any five consecutive trading day period when the trading price per $1,000 principal amount of notes for each trading day is less than 98% of the product of the last reported sales price of the Company’s Class A common stock and the conversion rate; or
upon the occurrence of specified corporate events.
On or after May 1, 2019, up until the close of business on the second trading day immediately preceding the maturity date, a holder may convert all or any portion of its notes regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The Company intends to settle the principal and interest due on the Notes in cash.
The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. A holder who converts its notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the Notes are, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its notes at a repurchase price equal to 100% of the principal amount of the repurchased notes, plus accrued and unpaid interest.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the proceeds received upon issuance of the Notes. The difference between the principal amount of the Notes and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred transaction costs of approximately $0.7 million related to the issuance of the Notes. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were recorded in other assets in the condensed consolidated balance sheet and are being amortized to interest expense over the term of the Notes, and transaction costs attributable to the equity component were netted with the equity component in stockholders’ equity.

19


The Notes consisted of the following (in thousands):
 
June 30,
2015
Liability:
 
Principal
$
1,322,500

Less: debt discount, net of amortization
(218,490
)
Net carrying amount
$
1,104,010

 
 
Equity
$
236,752

The Company recognized interest expense on the Notes as follows (in thousands, except for percentage):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2015
Contractual interest expense based on 0.50% per annum
$
1,672

 
$
3,325

Amortization of debt issuance costs
27

 
54

Amortization of debt discount
11,295

 
22,457

Total
$
12,994

 
$
25,836

Effective interest rate of the liability component
4.7
%
 
4.7
%
The total estimated fair value of the Notes as of June 30, 2015 was $1,330.3 million. The fair value was determined based on the closing trading price of the Notes as of the last day of trading for the period. The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited trading activity of the Notes.
Based on the closing price of our Class A common stock of $206.63 on June 30, 2015, the if-converted value of the Notes was less than the principal amount.
Note Hedges and Warrants
Concurrently with the issuance of the Notes, the Company purchased options (“Note Hedges”) with respect to its Class A common stock for $248.0 million with certain bank counterparties. The Note Hedges cover up to 4,490,020 shares of the Company's Class A common stock at a strike price of $294.54 per share, which corresponds to the initial conversion price of the Notes, and are exercisable by the Company upon conversion of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes. The Note Hedges are separate transactions and are not part of the terms of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges.
Concurrently with the issuance of the Notes, the Company sold warrants to bank counterparties for total proceeds of $167.3 million that provides the counterparties with the right to buy up to 4,490,020 shares of our Class A common stock at a strike price of $381.82 per share. The warrants are separate transactions and are not part of the Notes or Note Hedges. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.
The amounts paid and received for the Note Hedges and warrants have been recorded in additional paid-in capital in the condensed consolidated balance sheets. The fair value of the Note Hedges and warrants are not remeasured through earnings each reporting period. The amounts paid for the Note Hedges are tax deductible expenses, while the proceeds received from the warrants are not taxable.


20


Impact to Earnings per Share

The Notes will have no impact to diluted earnings per share until the average price of our Class A common stock during the reporting period exceeds the conversion price of $294.54 per share because the principal amount of the Notes is intended to be settled in cash upon conversion. Under the treasury stock method, in periods the Company reports net income, the Company is required to include the effect of additional shares that may be issued under the Notes when the price of the Company’s Class A common stock exceeds the conversion price. Under this method, the cumulative dilutive effect of the Notes would be approximately 1,026,000 shares if the average price of the Company’s Class A common stock is $381.82. However, upon conversion, there will be no economic dilution from the Notes, as exercise of the Note Hedges eliminate any dilution from the Notes that would have otherwise occurred when the price of the Company’s Class A common stock exceeds the conversion price. The Note Hedges are required to be excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.

The warrants will have a dilutive effect when the average share price exceeds the warrant’s strike price of $381.82 per share. As the price of the Company’s Class A common stock continues to increase above the warrant strike price, additional dilution would occur at a declining rate so that a $10 increase from the warrant strike price would yield cumulative dilution of approximately 1,229,000 diluted shares for EPS purposes. However, upon conversion, the Note Hedges would neutralize the dilution from the Notes so that there would only be dilution from the warrants, which would result in actual dilution of approximately 115,000 shares at a common stock price of $391.82.

10.
Other Income (Expense), Net
The following table presents the detail of other income (expense), net, for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Interest income
$
2,017

 
$
1,329

 
$
4,002

 
$
2,335

Interest expense (1)
(12,694
)
 

 
(25,291
)
 

Net loss on foreign exchange and foreign currency derivative contracts
(1,944
)
 
(220
)
 
(6,380
)
 
(195
)
Net realized gain on sales of marketable securities
66

 
56

 
161

 
70

Other non-operating income, net
155

 
32

 
461

 
13

Total other income (expense), net
$
(12,400
)
 
$
1,197

 
$
(27,047
)
 
$
2,223

 __________________
(1)
The Company capitalized $0.3 million and $0.5 million of interest expense for the three and six months ended June 30, 2015, respectively. The Company did not capitalize interest expense in 2014.


11.
Loss Per Share
Basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities.
Class A and Class B common stock are the only outstanding equity in the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder, and are automatically converted to Class A common stock upon sale or transfer, subject to certain limited exceptions.
Basic net loss per share attributable to common stockholders is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The Company’s potential common shares consist of shares issuable upon the release of RSUs, and to a lesser extent, the incremental common shares issuable upon the exercise of stock options and purchases related to the 2011 Employee Stock Purchase Plan. The dilutive effect of these potential

21


common shares is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net loss per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net loss per share of Class B common stock does not assume the conversion of Class A common stock as Class A common stock is not convertible into Class B common stock.
The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B common stock is assumed in the computation of the diluted net loss per share of Class A common stock, the undistributed earnings are equal to net loss for that computation.


22


The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of undistributed earnings
$
(59,469
)
 
$
(8,279
)
 
$
(894
)
 
$
(140
)
 
$
(96,649
)
 
$
(13,647
)
 
$
(12,494
)
 
$
(1,985
)
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
112,569

 
15,672

 
105,698

 
16,472

 
111,167

 
15,697

 
104,903

 
16,668

Basic net loss per share attributable to common stockholders
$
(0.53
)
 
$
(0.53
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.87
)
 
$
(0.87
)
 
$
(0.12
)
 
$
(0.12
)
Diluted net loss per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of undistributed earnings for basic computation
$
(59,469
)
 
$
(8,279
)
 
$
(894
)
 
$
(140
)
 
$
(96,649
)
 
$
(13,647
)
 
$
(12,494
)
 
$
(1,985
)
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares
(8,279
)
 

 
(140
)
 

 
(13,647
)
 

 
(1,985
)
 

Allocation of undistributed earnings
$
(67,748
)
 
$
(8,279
)
 
$
(1,034
)
 
$
(140
)
 
$
(110,296
)
 
$
(13,647
)
 
$
(14,479
)
 
$
(1,985
)
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used in basic calculation
112,569

 
15,672

 
105,698

 
16,472

 
111,167

 
15,697

 
104,903

 
16,668

Weighted-average effect of dilutive securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of Class B to Class A common shares outstanding
15,672

 

 
16,472

 

 
15,697

 

 
16,668

 

Number of shares used in diluted calculation
128,241

 
15,672

 
122,170

 
16,472

 
126,864

 
15,697

 
121,571

 
16,668

Diluted net loss per share attributable to common stockholders
$
(0.53
)
 
$
(0.53
)
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.87
)
 
$
(0.87
)
 
$
(0.12
)
 
$
(0.12
)
The following weighted-average employee equity awards were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):

23


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Employee stock options
2,868

 
4,446

 
2,888

 
4,664

RSUs and other equity
6,066

 
4,669

 
5,971

 
4,359

Total
8,934

 
9,115

 
8,859

 
9,023


12.
Commitments and Contingencies
Aggregate Future Lease Commitments
The Company leases its office facilities and data centers under operating lease agreements, the longest of which is expected to expire in 2029. The Company’s future minimum payments, which exclude operating expenses, under non-cancelable operating leases for office facilities and data centers having initial terms in excess of one year, and sublease income as of June 30, 2015 are as follows (in thousands):
 
Year Ending December 31,
Gross Operating Lease Commitments (1)
 
Sublease
Income (2)
 
Net Operating Lease Commitments
Remainder of 2015
$
64,249

 
$
(4,044
)
 
$
60,205

2016
143,767

 
(17,446
)
 
126,321

2017
143,567

 
(17,592
)
 
125,975

2018
162,906

 
(18,109
)
 
144,797

2019
166,090

 
(18,653
)
 
147,437

Thereafter
1,139,484

 
(140,408
)
 
999,076

Total minimum lease payments
$
1,820,063

 
$
(216,252
)
 
$
1,603,811

 __________________
(1)
Subsequent to June 30, 2015, the Company leased additional office space for aggregate future minimum lease payments of approximately $65.2 million over a term of 11 years. The Company estimates the payments will begin in mid-2016. The Company also leased additional office space and purchased properties for aggregate commitments of $52.9 million, of which $15.9 million was paid in prior periods.
(2)
Primarily represents sublease income for several buildings the Company leases in Sunnyvale, California to be recognized over the next 12 years.
Legal Proceedings
The Company is subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Although occasional adverse decisions or settlements may occur, the Company does not believe that the final disposition of any of these matters will have a material adverse effect on the business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages, and include claims for injunctive relief. Additionally, the Company's litigation costs are significant. Other regulatory matters could result in fines and penalties being assessed against the Company, and it may become subject to mandatory periodic audits, which would likely increase its regulatory compliance costs. Adverse results of litigation or regulatory matters could also result in the Company being required to change its business practices, which could negatively impact its membership and revenue growth.
The Company records a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, it may be exposed to loss in excess of the amount accrued, and such amounts could be material.

24


Indemnifications
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, it may have recourse against third parties for certain payments. In addition, the Company has indemnification agreements with certain of its directors and executive officers that require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers with the Company. The terms of such obligations may vary.
 
13.
Stockholders’ Equity
Common Stock
As of June 30, 2015, the Company had 114,670,215 shares and 15,658,197 shares of Class A common stock and Class B common stock outstanding, respectively. As of December 31, 2014, the Company had 109,259,689 and 15,782,261 shares of Class A common stock and Class B common stock outstanding, respectively.
Stock Option Activity
A summary of stock option activity for the six months ended June 30, 2015 is as follows: 
 
Options Outstanding
 
Weighted-Average
Remaining
Contractual 
Term
(in years)
 
Aggregate
Intrinsic
Value
(in thousands)
 
Number of
Shares
 
Weighted-Average
Exercise Price
 
 
 
 
Outstanding—December 31, 2014
3,027,717

 
$
69.53

 
 
 
 
Assumed options from acquisitions
178,763

 
29.92

 
 
 
 
Granted
222,132

 
267.21

 
 
 
 
Exercised
(533,246
)
 
22.36

 
 
 
 
Canceled or expired
(8,061
)
 
40.66

 
 
 
 
Outstanding—June 30, 2015
2,887,305

 
$
91.08

 
6.29
 
$
349,291

Options expected to vest as of June 30, 2015
2,770,195

 
$
86.80

 
6.19
 
$
345,450

Options exercisable as of June 30, 2015
1,932,423

 
$
44.49

 
5.18
 
$
314,699

Aggregate intrinsic value represents the difference between the Company's closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the New York Stock Exchange (“NYSE”) as of June 30, 2015 was $206.63. The total intrinsic value of options exercised was approximately $31.8 million and $54.1 million for the three months ended June 30, 2015 and 2014, respectively, and $120.2 million and $182.1 million for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately $73.8 million, which is expected to be recognized over the next 2.8 years.

25


RSU Activity
A summary of RSU activity for the six months ended June 30, 2015 is as follows: 
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in thousands)
Unvested—December 31, 2014
5,140,627

 
$
176.78

 
 
Granted
1,943,877

 
259.32

 
 
Vested
(1,033,534
)
 
167.19

 
 
Canceled
(336,679
)
 
180.69

 
 
Unvested—June 30, 2015
5,714,291

 
$
229.39

 
$
1,180,744

Expected to vest as of June 30, 2015
5,008,543

 


 
$
1,034,915

The intrinsic value of RSUs released was approximately $112.1 million and $66.0 million in the three months ended June 30, 2015 and 2014, respectively, and $234.5 million and $131.6 million for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, the total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $960.1 million, which is expected to be recognized over the next 2.8 years.
Restricted Stock
As of June 30, 2015, the total unrecognized compensation cost related to restricted stock was approximately $31.5 million, which is expected to be recognized over the next 1.1 years.
Stock-Based Compensation
The following table presents the amount of stock-based compensation related to stock-based awards to employees recognized in the Company’s condensed consolidated statements of operations during the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Cost of revenue
$
11,946

 
$
6,831

 
$
21,703

 
$
12,667

Sales and marketing
23,417

 
13,926

 
42,758

 
26,107

Product development
59,847

 
37,582

 
109,817

 
70,708

General and administrative
50,281

 
16,489

 
74,322

 
33,115

Total stock-based compensation
145,491

 
74,828

 
248,600

 
142,597

Tax benefit from stock-based compensation
(36,479
)
 
(21,161
)
 
(66,583
)
 
(39,939
)
Total stock-based compensation, net of tax effect
$
109,012

 
$
53,667

 
$
182,017

 
$
102,658


The Company capitalized $5.6 million and $3.6 million for the three months ended June 30, 2015 and 2014, respectively, and $10.0 million and $6.3 million for the six months ended June 30, 2015 and 2014, respectively of stock-based compensation as website development costs.

14.
Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax, for the periods presented (in thousands):
 
Unrealized Gains/Losses on Investments
 
Unrealized Gains on Cash Flow Hedges
 
Foreign Currency Translation Adjustments
 
Total
AOCI—March 31, 2015

$
254

 
$
883

 
$
(52
)
 
$
1,085

Other comprehensive income (loss) before adjustments
(262
)
 
(4,668
)
 
16

 
(4,914
)
Amounts reclassified from AOCI
18

 
934

 

 
952

     Other comprehensive income (loss)
$
(244
)
 
$
(3,734
)
 
$
16

 
$
(3,962
)
AOCI—June 30, 2015

$
10

 
$
(2,851
)
 
$
(36
)
 
$
(2,877
)

 
Unrealized Gains/Losses on Investments
 
Unrealized Gains on Cash Flow Hedges
 
Foreign Currency Translation Adjustments
 
Total
AOCI—December 31, 2014

$
(149
)
 
$

 
$
(49
)
 
$
(198
)
Other comprehensive income (loss) before adjustments
73

 
(3,785
)
 
13

 
(3,699
)
Amounts reclassified from AOCI
86

 
934

 

 
1,020

     Other comprehensive income (loss)
$
159

 
$
(2,851
)
 
$
13

 
$
(2,679
)
AOCI—June 30, 2015

$
10

 
$
(2,851
)
 
$
(36
)
 
$
(2,877
)

 
Unrealized Gains/Losses on Investments
 
Foreign Currency Translation Adjustments
 
Total
AOCI—March 31, 2014

$
685

 
$
(3
)
 
$
682

Other comprehensive income before adjustments
136

 

 
136

Amounts reclassified from AOCI
45

 

 
45

     Other comprehensive income
181

 

 
181

AOCI—June 30, 2014

$
866

 
$
(3
)
 
$
863


 
Unrealized Gains/Losses on Investments
 
Foreign Currency Translation Adjustments
 
Total
AOCI—December 31, 2013

$
317

 
$
(3
)
 
$
314

Other comprehensive income before adjustments
494

 

 
494

Amounts reclassified from AOCI
55

 

 
55

     Other comprehensive income
549

 

 
549

AOCI—June 30, 2014

$
866

 
$
(3
)
 
$
863









26


The following table presents the impact of reclassification adjustments from AOCI on net loss for the periods presented (in thousands):
AOCI Components
 
Location
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
Unrealized losses on cash flow hedges
 
Net revenue
 
$
(934
)
 
$

 
$
(934
)
 
$

Unrealized losses on investments
 
Other income (expense), net
 
(18
)
 
(45
)
 
(86
)
 
(55
)
Total amount reclassified from AOCI
 
 
 
$
(952
)
 
$
(45
)
 
$
(1,020
)
 
$
(55
)

15.
Income Taxes
The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from activities outside the United States are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries because it is the Company’s intent to reinvest earnings indefinitely offshore. The determination of the interim period income tax provision utilizes the effective rate method, which requires the estimation of certain annualized components of the computation of the income tax provision, including the estimate of the annual effective tax rate by legal entity and by jurisdiction. The Company's ability to estimate the geographic mix of earnings is impacted by the relatively high-growth nature of the business, acquisitions, fluctuations of business operations by country and implementation of tax planning strategies.  
On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (the "2014 Act"). Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2013. The 2014 Act extended the research credit for one year to December 31, 2014. As a result of the retroactive extension, the Company recognized a tax benefit of $15.5 million for qualifying amounts incurred in 2014. However, the federal research credit has not been extended for new research activities incurred after December 31, 2014 and as such, the Company will not have a similar tax benefit in 2015 unless new legislation is passed which will provide a credit for qualifying amounts generated in 2015.
The Company recorded income tax benefit of $26.0 million and $15.5 million for the three and six months ended June 30, 2015, respectively, and income tax expense of $16.3 million and $29.8 million for the three and six months ended June 30, 2014, respectively. The Company recognized a tax benefit in the three and six months ended June 30, 2015 compared to the same periods last year primarily due to the decrease in forecasted U.S. profit before tax, foreign tax losses which derive no benefit, acquisition costs, and non-deductible stock-based compensation. The Company's foreign losses decreased during the three and six months ended June 30, 2015 compared to the same periods last year primarily due to lower international research and development expenses. International research and development expenses include costs charged to foreign jurisdictions by LinkedIn Corporation.
In the second quarter of 2015, the Company received a Notice of Proposed Adjustment, (“NOPA”) from the IRS related to certain transfer pricing tax positions. The Company is currently evaluating the impact of the proposed adjustments to its financial results, which could result in additional tax payments in the range of $0.2 million to $0.3 million, plus interest and penalties to be made by the end of 2015.


27


16.
Information About Revenue and Geographic Areas
Revenue by geography is generally based on the shipping address of the customer. The following tables present the Company’s revenue by product and geographic region for the periods presented (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net revenue by product:
 
 
 
 
 
 
 
Talent Solutions
 
 
 
 
 
 
 
          Hiring
$
425,812

 
$
322,227

 
$
822,187

 
$
613,821

          Learning & Development
17,558

 

 
17,558

 

     Total Talent Solutions
443,370

 
322,227

 
839,745

 
613,821

Marketing Solutions
140,037

 
106,476

 
259,229

 
192,540

Premium Subscriptions
128,328

 
105,174

 
250,448

 
200,709

Total
$
711,735

 
$
533,877

 
$
1,349,422

 
$
1,007,070


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net revenue by geographic region:
 
 
 
 
 
 
 
United States
$
444,531

 
$
317,774

 
$
833,789

 
$
602,652

Other Americas (1)
39,904

 
35,527

 
77,970

 
67,431

Total Americas
484,435

 
353,301

 
911,759

 
670,083

EMEA(2)
168,771

 
134,930

 
325,334

 
252,801

APAC (3)
58,529

 
45,646

 
112,329

 
84,186

Total
$
711,735

 
$
533,877

 
$
1,349,422

 
$
1,007,070

 __________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)
No individual customer accounted for 10% or more of consolidated net revenue or accounts receivable for any of the periods presented.
 
17.
Subsequent Events
    
In July 2015, the Company leased additional office space to be developed for aggregate future minimum lease payments of approximately $65.2 million over a term of 11 years. The Company estimates the payments will begin in mid-2016. The Company also leased additional office space and purchased properties for aggregate commitments of $52.9 million, of which $15.9 million was paid in prior periods.
In July 2015, the Compensation Committee of the Company's Board of Directors approved 626,987 RSUs for grant of Class A common stock under the 2011 Plan, which includes grants to newly hired lynda.com employees. The RSUs granted to newly hired employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining vesting quarterly thereafter. The RSUs granted to existing employees generally vest quarterly over a four-year period.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Risk Factors” above, which are incorporated herein by reference.
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 12, 2015.

Overview
We are the world’s largest professional network on the Internet with approximately 380 million members in over 200 countries and territories. We believe we are the most extensive, accurate and accessible network focused on professionals. We seek to create value for members by connecting them to the most important people, knowledge, and opportunities in their professional lives. Our members create the core of our platform, and we, in turn, provide members with applications and tools to help them more effectively manage their careers to achieve their full potential.
In the three and six months ended June 30, 2015, we continued to experience growth in revenue as well as the number of members and member activity as compared to the same periods in 2014. With respect to our platform, we continue to increase the value we deliver to members and increase our network of registered members as we continue to invest in our core experience, especially focused on mobile, global expansion, content, and hiring. With respect to monetization, our net revenue was $711.7 million and $1,349.4 million for the three and six months ended June 30, 2015, respectively, which represented an increase of 33% and 34%, respectively, compared to the same periods in 2014. Our future growth will depend, in part, on our ability to continue to increase our member base and create value for our members on both mobile and desktop devices, as well as continuing to expand our product offerings and international presence, which we believe will result in increased sales of our Talent Solutions, Marketing Solutions, and Premium Subscriptions to new and existing customers. As our net revenue increases, we expect our growth rate related to net revenue will continue to decrease over time. Also, 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 portions of our business.
On May 14, 2015, we completed our acquisition of lynda.com, Inc. ("lynda.com"), a California-based privately held online learning company that offers an extensive, high quality library of professional training videos and courses. We believe that the acquisition of lynda.com positions us to be able to further expand on our long-term content strategy, and to realize our vision of building the world's first economic graph. The total purchase price for all of the outstanding equity interests of lynda.com consists of approximately $1.5 billion, subject to adjustment, in combination of approximately 52% in cash and approximately 48% in our Class A common stock.

28


In 2015, our philosophy is to continue to invest for long-term growth with particular focus on the following:
Talent. We expect to continue expanding our workforce, specifically related to our product development team and field sales organization. This will result in an increase in headcount-related expenses, including stock-based compensation expense and capital expenditures related to facilities. As of June 30, 2015, we had 8,735 employees, which represented an increase of 52% compared to the same period last year. Excluding the employees from our acquisition of lynda.com, we would have had 8,160 employees, which represents an increase of 42% compared to the same period last year.
Technology. We expect to continue to make significant capital expenditures to upgrade our technology and network infrastructure to improve the ability of our website to handle expected increases in usage, to enable the release of new features and solutions, and to scale for future growth. These investments are particularly focused on expanding our footprint of data centers.
Product. With respect to product development, we will focus investment on our key value proposition: connect to opportunity.
Members. We plan to continue to invest in our member experience focusing on connecting members to their professional world through our desktop and mobile flagship experiences; allowing members to stay informed through professional news and knowledge through our publishing platform and content ecosystem; and enabling members to get hired and build their careers.
Customers. We plan to continue to invest in our product development efforts to transform the way customers hire, market, and sell. In 2015, we expect to accelerate hiring product development headcount dedicated to our monetized product lines: Talent Solutions, Marketing Solutions, and Premium Subscriptions, which includes Sales Solutions.
In addition, we expect to continue to invest in mobile across our product lines. Mobile is the fastest growing channel for member engagement, growing at twice the rate of overall site traffic with mobile unique visiting members representing 52% of unique visiting members in second quarter of 2015.
Monetization. We expect to continue to aggressively expand our field sales organization to market our solutions both in the United States and internationally.
As a result of our investment philosophy, we expect to be in an operating loss on a consolidated basis under United States generally accepted accounting principles (“U.S. GAAP”).

Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Number of Registered Members. We define the number of registered members in our network as the number of individual users who have created a member profile on LinkedIn.com as of the date of measurement. We believe the number of registered members is an indicator of the growth of our network and our ability to receive the benefits of the network effects resulting from such growth. Growth in our member base depends, in part, on our ability to successfully develop and market our solutions to professionals who have not yet become members of our network. Continued member growth is also contingent on our ability to translate our offerings into additional languages, create more localized products in certain key markets, and more broadly expand our member base internationally. We believe that a higher number of registered members will indirectly result in increased sales of our Talent Solutions, Marketing Solutions, and Premium Subscriptions, as customers will have access to an expanded pool of relevant professionals. However, a higher number of registered members will not immediately increase sales, nor will a higher number of registered members in a given region immediately increase sales in that region, as growth of sales and marketing activities generally takes more time to develop than membership growth.

29


The following table presents the number of registered members as of the periods presented by geographic region:
 
 
June 30,
 
 
 
2015
 
2014
 
% Change
 
(in thousands)
 
 
Members by geographic region:
 
 
 
 
 
 
 
 
 
United States
119,197

 
31
%
 
103,818

 
33
%
 
15
%
Other Americas (1)
65,327

 
17
%
 
54,121

 
17
%
 
21
%
Total Americas
184,524

 
49
%
 
157,939

 
50
%
 
17
%
EMEA (2)
122,330

 
32
%
 
98,866

 
32
%
 
24
%
APAC (3)
73,033

 
19
%
 
56,623

 
18
%
 
29
%
Total number of registered members (4)
379,887

 
100
%
 
313,428

 
100
%
 
21
%
 ______________________
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)
(4)
The number of registered members is higher than the number of actual members due to various factors. For more information, see “Risk Factors—The number of our registered members is higher than the number of actual members and a substantial majority of our traffic is generated by a minority of our members. Our business may be adversely impacted if we are unable to attract and retain additional members who actively use our services.

Unique Visiting Members. We define unique visiting members as the total number of members who have visited LinkedIn.com on desktop or have visited selected mobile applications offered by LinkedIn.com on their mobile devices at least once during the month. We view unique visiting members as a key indicator of whether we are delivering value to members by continuing to improve our product offerings as well as growth in our brand awareness among members. Higher levels of member traffic contribute to building a larger pool of professional talent and a richer data ecosystem, which is our key monetizable asset. We leverage these assets, both directly and indirectly, to grow sales within Talent Solutions, Marketing Solutions, and Premium Subscriptions. Continued growth in unique visiting members will be driven by growth in the number of registered members, improvements to features and products that drive traffic to our website, and international expansion.

The following table presents the average monthly number of unique visiting members during the periods presented:
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Unique visiting members (1), (3)
97,308

 
84,222

 
16
%
 
97,078

 
83,160

 
17
%
Mobile unique visiting members (2), (3)
50,674

 
37,514

 
35
%
 
49,688

 
36,348

 
37
%
 ______________________
(1)
Members who have visited LinkedIn.com on desktop and/or have visited selected mobile applications offered by LinkedIn.com on their mobile devices.
(2)
Members who have visited selected mobile applications offered by LinkedIn.com on their mobile devices.
(3)
We track unique visiting members using internal tools, which are subject to various risks. For more information, see “Risk Factors—The tracking of certain of our performance metrics is done with internal tools and is not independently verified. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Member Page Views. We define page views as the total number of page views members view during the measurement period on LinkedIn.com for desktop and on selected mobile applications offered by LinkedIn.com for mobile devices. Similar to unique visiting members, we believe member page views is an indicator for gaining insight into whether our members are deriving increased value from our solutions.

30


However, as overall site traffic is increasingly coming from mobile, we expect this metric to become less meaningful over time, as a well-designed mobile application reduces the number of clicks and pages a user touches in order to create a high quality mobile experience. Additionally, member page views may not capture all of the value that our members and other users derive from our solutions because part of the benefit of certain products and features is that the member does not need to visit our website to receive value from our platform. For example, members can respond to InMails they receive from other members without accessing their LinkedIn account or our website.

The following table presents the number of member page views during the periods presented:
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Member page views (1), (2)
34,792

 
25,427

 
37
%
 
68,619

 
51,358

 
34
%
 ______________________
(1)
These metrics include member page views on LinkedIn.com for desktop and selected mobile applications offered by LinkedIn for mobile devices.
(2)
We track page views using internal tools, which are subject to various risks. For more information, see “Risk Factors—The tracking of certain of our performance metrics is done with internal tools and is not independently verified. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Number of LinkedIn Corporate Solutions Customers. We define the number of LinkedIn Corporate Solutions ("LCS") customers as the number of enterprises and professional organizations that we have under active contracts for our LCS products as of the date of measurement. Our LCS products include LinkedIn Recruiter, Job Slots, LinkedIn Recruitment Media, and LinkedIn Career Pages, which are all part of Hiring within Talent Solutions. LCS products do not include LinkedIn Jobs or Subscriptions. LCS customers have historically purchased through our field sales channel, which represents approximately 75% of Talent Solutions revenue. We believe the number of LCS customers is an indicator of our market penetration in the online recruiting market and the value that our products bring to both large and small enterprises and professional organizations.

The following table presents the number of LCS customers as of the periods presented: 
 
June 30,
 
 
 
2015
 
2014
 
% Change
 
 
 
 
LCS customers
37,425

 
28,080

 
33
%
 
Sales Channel Mix. We sell our Talent Solutions, Marketing Solutions, and Premium Subscriptions, which includes Sales Solutions, offline through our field sales organization or online on our website. Historically, the majority of our Premium Subscriptions was sold online on our website; however, since the launch of the new Sales Navigator and increasing investment in a Sales Solutions field sales teams, we expect that the portion of Premium Subscriptions revenue derived from our field sales channel will continue to increase over time.
Our field sales organization uses a direct sales force to solicit customers and agencies. This offline channel is characterized by a longer sales cycle where price can be negotiated, higher relative average selling prices, longer contract terms, higher selling expenses, and a longer cash collection cycle compared to our online channel.
Our online, or self-service, sales channel allows members to purchase solutions directly on our website. Members can purchase Premium Subscriptions as well as certain lower priced products in our Talent Solutions and Marketing Solutions, such as job postings and self-service advertising. This channel is characterized by lower average selling prices and higher cancellations compared to our offline channel, lower selling costs due to our automated payments platform, and a highly liquid collection cycle.


31


The following table presents our net revenue by field and online sales:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
($ in thousands)
Field sales
$
440,476

 
62
%
 
$
318,984

 
60
%
 
$
833,727

 
62
%
 
$
594,246

 
59
%
Online sales
271,259

 
38
%
 
214,893

 
40
%
 
515,695

 
38
%
 
412,824

 
41
%
     Net revenue
$
711,735

 
100
%
 
$
533,877

 
100
%
 
$
1,349,422

 
100
%
 
$
1,007,070

 
100
%
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we disclose adjusted EBITDA, a non-GAAP financial measure. The following table presents a reconciliation of adjusted EBITDA to net loss, the most directly comparable U.S. GAAP financial measure.
We include adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers and employees. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other U.S. GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
 
(in thousands)
Reconciliation of Adjusted EBITDA:
 
 
 
 
 
 
 
     Net loss
$
(67,500
)
 
$
(934
)
 
$
(109,939
)
 
$
(14,253
)
     Provision (benefit) for income taxes
(26,048
)
 
16,253

 
(15,476
)
 
29,834

     Other (income) expense, net
12,400

 
(1,197
)
 
27,047

 
(2,223
)
     Depreciation and amortization
99,004

 
56,306

 
172,976

 
106,046

     Stock-based compensation
145,491

 
74,828

 
248,600

 
142,597

     Adjusted EBITDA
$
163,347

 
$
145,256

 
$
323,208

 
$
262,001



32



Results of Operations
The following tables set forth our results of operations for the periods presented as a percentage of net revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(as a percentage of net revenue)
Condensed Consolidated Statements of Operations Data: (1)
 
 
 
 
 
 
 
Net revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
14

 
13

 
14

 
13

Sales and marketing
37

 
35

 
36

 
35

Product development
27

 
24

 
26

 
25

General and administrative
20

 
15

 
18

 
15

Depreciation and amortization
14

 
11

 
13

 
11

Total costs and expenses
111

 
97

 
107

 
99

Income (loss) from operations
(11
)
 
3

 
(7
)
 
1

Other income (expense), net:
 
 
 
 
 
 
 
Interest income

 

 

 

Interest expense
(2
)
 

 
(2
)
 

Other, net

 

 

 

Other income (expense), net
(2
)
 

 
(2
)
 

Income (loss) before income taxes
(13
)
 
3

 
(9
)
 
2

Provision (benefit) for income taxes
(4
)
 
3

 
(1
)
 
3

Net loss
(9
)
 

 
(8
)
 
(1
)
Accretion of redeemable noncontrolling interest

 

 

 

Net loss attributable to common stockholders
(10
)%
 
 %
 
(8
)%
 
(1
)%
 ______________________
(1) Certain items may not total due to rounding.

Net Revenue
We generate revenue from Talent Solutions, Marketing Solutions, and Premium Subscriptions.
Talent Solutions. Revenue from our Talent Solutions consists of revenue from our Hiring and Learning & Development products. Revenue from Hiring is derived primarily from providing access to the LinkedIn Recruiter product, job postings, Career Pages, and Job Seeker subscriptions. We provide access to our professional database of both active and passive job candidates with LinkedIn Recruiter, which allows corporate recruiting teams to identify candidates based on industry, job function, geography, experience/education, and other specifications. Revenue from the LinkedIn Recruiter product is recognized ratably over the subscription period, which consists primarily of annual subscriptions that are billed monthly, quarterly, or annually. We also earn revenue from the placement of job postings on our website, which generally run for 30 days. Independent recruiters can pay to post job openings that are accessible through job searches or targeted job matches. Revenue from job postings is recognized as the posting is displayed or at the expiration of the contract period, if not utilized. Revenue from Learning & Development is derived from individual and enterprise subscriptions to the lynda.com learning platform. Revenue from these subscriptions is recognized ratably over the subscription period, which consists of monthly and annual subscriptions for individuals and annual and multi-year subscriptions for enterprises.
Marketing Solutions. Revenue from Marketing Solutions is earned from advertisements (consisting of content-based, graphic display, and text link) shown primarily on LinkedIn.com and our mobile applications based on either

33


a cost per click or cost per advertisement model, with the mix shifting increasingly to cost per click. Revenue from Internet advertising is recognized as the online advertisements are displayed on Linkedin.com and our mobile applications. Through the 2014 acquisition of Bizo and the re-launch of our marketing solutions product suite, we now sell and recognize a portion of revenue from off-network advertising. The typical duration of our advertising contracts is approximately two months.
Premium Subscriptions. Revenue from Premium Subscriptions is derived primarily from selling various online subscriptions to customers that allow users to have further access to premium services on LinkedIn.com. We also include revenue from our Sales Solutions products, which includes solutions sold through our field sales channel. We offer our members monthly or annual subscriptions. Revenue from Premium Subscriptions is recognized ratably over the contract period, which is generally one to 12 months.
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Net revenue by product:
 
 
 
 
 
 
 
 
 
 
 
Talent Solutions
 
 
 
 
 
 
 
 
 
 
 
          Hiring
$
425,812

 
$
322,227

 
32
%
 
$
822,187

 
$
613,821

 
34
%
          Learning & Development
17,558

 

 
n/a

 
17,558

 

 
n/a

     Total Talent Solutions
443,370

 
322,227

 
38
%
 
839,745

 
613,821

 
37
%
Marketing Solutions
140,037

 
106,476

 
32
%
 
259,229

 
192,540

 
35
%
Premium Subscriptions
128,328

 
105,174

 
22
%
 
250,448

 
200,709

 
25
%
Total
$
711,735

 
$
533,877

 
33
%
 
$
1,349,422

 
$
1,007,070

 
34
%
Percentage of net revenue by product: (1)
 
 
 
 
 
 
 
 
 
 
 
Talent Solutions
62
%
 
60
%
 
 
 
62
%
 
61
%
 
 
Marketing Solutions
20
%
 
20
%
 
 
 
19
%
 
19
%
 
 
Premium Subscriptions
18
%
 
20
%
 
 
 
19
%
 
20
%
 
 
Total
100
%
 
100
%
 
 
 
100
%
 
100
%
 
 
  ______________________
(1)     Certain items may not total due to rounding.
Total net revenue increased $177.9 million and $342.4 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year.
Net revenue from our Talent Solutions increased $121.1 million and $225.9 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increases in Hiring were driven by increased spending by existing customers as well as generating business from new customers, as evidenced by the 33% increase in the number of LCS customers as of June 30, 2015 compared to the same period last year. Learning & Development consists of revenue from our recent acquisition of lynda.com.
Net revenue from our Marketing Solutions increased $33.6 million and $66.7 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increase was primarily due to Sponsored Updates from our field sales and self-service channels, and to a lesser extent, revenue from Bizo and re-launch of our marketing solutions product suite, partially offset by weakness in our display advertising products. Sponsored content represented approximately 45% of Marketing Solutions revenue in the three and six months ended June 30, 2015 and we expect it to continue to represent a larger percentage of Marketing Solutions revenue as we continue to gain traction in our shift to content marketing and we continue to see weakness in our display advertising products.
Net revenue from our Premium Subscriptions increased $23.2 million and $49.7 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year primarily due to the increase in revenue from our Sales Solutions products, which includes Sales Navigator. Our Sales Solutions products continue to grow at a faster rate than our other Premium Subscription products as well as continue to represent a larger percentage of total Premium Subscriptions revenue. Sales Solutions represented approximately one-third of Premium Subscriptions revenue in the three and six months ended June 30, 2015.

34


The following table presents our net revenue by geographic region:
 
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Net revenue by geographic region:
 
 
 
 
 
 
 
 
 
 
 
United States
$
444,531

 
$
317,774

 
40
%
 
$
833,789

 
$
602,652

 
38
%
Other Americas
39,904

 
35,527

 
12
%
 
77,970

 
67,431

 
16
%
Total Americas
484,435

 
353,301

 
37
%
 
911,759

 
670,083

 
36
%
EMEA
168,771

 
134,930

 
25
%
 
325,334

 
252,801

 
29
%
APAC
58,529

 
45,646

 
28
%
 
112,329

 
84,186

 
33
%
Total
$
711,735

 
$
533,877

 
33
%
 
$
1,349,422

 
$
1,007,070

 
34
%

United States revenue increased $126.8 million and $231.1 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. International revenue increased $51.1 million and $111.2 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. International revenue represented 38% of total revenue in the three and six months ended June 30, 2015, respectively, and 40% of total revenue in the three and six months ended June 30, 2014, respectively. The increase in international revenue is due to the expansion of our sales, technical and support operations in international locations and growth in our international member base due to developing our brand across various international geographies. We expect international revenue to increase on an absolute basis and to remain relatively flat as a percentage of total revenue in 2015 as we continue to expand our sales force in key international markets where member engagement supports business efforts at scale.

35


The following table presents our net revenue by geography, by product:
 
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Net revenue by geography, by product:
 
 
 
 
 
 
 
 
 
 
 
United States
 
 
 
 

 
 
 
 
 
 
Talent Solutions
$
277,772

 
$
197,852

 
40
%
 
$
518,524

 
$
378,255

 
37
%
Marketing Solutions
91,761

 
59,383

 
55
%
 
169,173

 
108,421

 
56
%
Premium Subscriptions
74,998

 
60,539

 
24
%
 
146,092

 
115,976

 
26
%
Total United States revenue
$
444,531

 
$
317,774

 
40
%
 
$
833,789

 
$
602,652

 
38
%
International
 
 
 
 
 
 
 
 
 
 
 
Talent Solutions
$
165,598

 
$
124,375

 
33
%
 
$
321,221

 
$
235,566

 
36
%
Marketing Solutions
48,276

 
47,093

 
3
%
 
90,056

 
84,119

 
7
%
Premium Subscriptions
53,330

 
44,635

 
19
%
 
104,356

 
84,733

 
23
%
Total International revenue
$
267,204

 
$
216,103

 
24
%
 
$
515,633

 
$
404,418

 
28
%
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
711,735

 
$
533,877

 
33
%
 
$
1,349,422

 
$
1,007,070

 
34
%
Cost of Revenue
Our cost of revenue primarily consists of salaries, benefits and stock-based compensation for our production operations, customer support, infrastructure and advertising operations teams and web hosting costs related to operating our website. Credit card processing fees, sales taxes, allocated facilities costs and other supporting overhead costs are also included in cost of revenue. We also expect higher expenses from off-network advertising associated with Marketing Solutions products in 2015 in connection with our acquisition of Bizo, Inc. and the relaunch of our marketing solutions product suite. And, beginning in the second quarter of 2015, we will incur production related costs, including author royalty expenses, in connection with our acquisition of lynda.com. Authors of published courses are paid a royalty based on usage of their course, which represents the number of times the courses are viewed. Consistent with our investment philosophy for 2015, we expect cost of revenue to increase on an absolute basis and as a percentage of revenue.
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Cost of revenue
$
100,086

 
$
69,536

 
44
%
 
$
188,492

 
$
131,991

 
43
%
Percentage of net revenue
14
%
 
13
%
 
 
 
14
%
 
13
%
 
 
Headcount (at period end)
1,346

 
883

 
52
%
 
1,346

 
883

 
52
%
Cost of revenue increased $30.6 million and $56.5 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increases during the same periods were primarily attributable to $16.4 million and $30.8 million in headcount related expenses as we continue to hire to support the growth of our business, $10.2 million and $17.4 million in other direct costs (primarily consisting of credit card processing fees), and $2.2 million and $4.4 million in facilities and related costs, respectively.

36


Sales and Marketing
Our sales and marketing expenses primarily consist of salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. In addition, sales and marketing expenses include customer acquisition marketing, branding, advertising, public relations costs, and commissions paid to agencies, as well as allocated facilities and other supporting overhead costs. We plan to continue to invest heavily in sales and marketing to expand our global footprint, grow our current customer accounts and continue building brand awareness. Consistent with our investment philosophy for 2015, we expect sales and marketing expenses to increase on an absolute basis and as a percentage of revenue. 
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Sales and marketing
$
261,271

 
$
184,494

 
42
%
 
$
490,907

 
$
351,016

 
40
%
Percentage of net revenue
37
%
 
35
%
 
 
 
36
%
 
35
%
 
 
Headcount (at period end)
3,936

 
2,452

 
61
%
 
3,936

 
2,452

 
61
%
Sales and marketing expenses increased $76.8 million and $139.9 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increases during the same periods were primarily attributable to $60.7 million and $114.8 million in headcount related expenses as we continue to expand our field sales organization globally. We also experienced an increase of $7.4 million and $6.3 million in marketing related expenses, $3.8 million and $10.2 million in facilities and related costs, and $2.1 million and $4.7 million in consulting services, respectively.
Product Development
Our product development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers, product managers and developers. In addition, product development expenses include outside services and consulting, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to achieving our strategic objectives. Consistent with our investment philosophy for 2015, we expect to continue to invest heavily in product development; therefore, we expect product development expense to increase on an absolute basis and as a percentage of revenue.
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Product development
$
190,133

 
$
128,731

 
48
%
 
$
355,713

 
$
249,353

 
43
%
Percentage of net revenue
27
%
 
24
%
 
 
 
26
%
 
25
%
 
 
Headcount (at period end)
2,216

 
1,555

 
43
%
 
2,216

 
1,555

 
43
%
Product development expenses increased $61.4 million and $106.4 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increases during the same periods were primarily attributable to $55.6 million and $97.0 million in headcount related expenses as a result of our focus on developing new features and products that create value for our members, $3.2 million in consulting services, and $1.9 million and $4.5 million in facilities and related costs, respectively.

37


General and Administrative
Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include outside consulting, legal and accounting services, and facilities and other supporting overhead costs not allocated to other departments. Consistent with our investment philosophy for 2015, we expect general and administrative expenses to increase on an absolute basis and as a percentage of revenue.
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
General and administrative
$
142,389

 
$
80,688

 
76
%
 
$
239,702

 
$
155,306

 
54
%
Percentage of net revenue
20
%
 
15
%
 
 
 
18
%
 
15
%
 
 
Headcount (at period end)
1,237

 
868

 
43
%
 
1,237

 
868

 
43
%
General and administrative expenses increased $61.7 million and $84.4 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increases during the same periods were primarily attributable to $54.5 million and $75.3 million in headcount related expenses to support our overall growth, of which, $29.1 million was related to one-time charges in connection with our acquisition of lynda.com. We also experienced an increase of $5.9 million and $4.8 million in legal and consulting services and $1.3 million and $3.7 million in facilities and related costs, respectively.
Depreciation and Amortization
Depreciation and amortization expenses primarily consist of depreciation on computer equipment, software, leasehold improvements, capitalized software development costs and amortization of purchased intangibles. We expect that depreciation and amortization expenses will increase on an absolute basis and increase as percentage of revenue as we continue to expand our technology and facilities infrastructure. 
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Depreciation and amortization
$
99,004

 
$
56,306

 
76
%
 
$
172,976

 
$
106,046

 
63
%
Percentage of net revenue
14
%
 
11
%
 
 
 
13
%
 
11
%
 
 
Depreciation and amortization expenses increased $42.7 million and $66.9 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year. The increase in depreciation expense of $20.4 million and $37.7 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year was the result of the build out of our data centers, increases in leasehold improvements as we lease additional facilities to accommodate our headcount growth, and increases in capitalized website and internal-use software. The increase in amortization expense of $22.3 million and $29.2 million in the three and six months ended June 30, 2015, respectively, compared to the same periods last year was primarily the result of amortization of intangible assets from our recent acquisition of lynda.com.
Other Income (Expense), Net
Other income (expense), net consists primarily of the interest expense from our Notes, income earned on our investments, and foreign exchange gains and losses. Hedging strategies that we have implemented or may implement to mitigate foreign exchange risk may not eliminate our exposure to foreign exchange fluctuations. We expect interest expense to increase on an absolute basis and as a percentage of revenue for 2015 relative to 2014 as we recently issued our Notes in November 2014.

38


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
($ in thousands)
Interest income
$
2,017

 
$
1,329

 
$
4,002

 
$
2,335

Interest expense 
(12,694
)
 

 
(25,291
)
 

Net loss on foreign exchange and foreign currency derivative contracts
(1,944
)
 
(220
)
 
(6,380
)
 
(195
)
Net realized gain on sales of marketable securities
66

 
56

 
161

 
70

Other non-operating income, net
155

 
32

 
461

 
13

Total other income (expense), net
$
(12,400
)
 
$
1,197

 
$
(27,047
)
 
$
2,223

Other income (expense), net decreased in the three and six months ended June 30, 2015 compared to the same periods last year primarily due to interest expense related to our Notes and the increase of foreign exchange losses as a result of the strengthening U.S. dollar.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. We expect to be in an operating loss on a consolidated basis under U.S. GAAP in 2015
 
Three Months Ended
June 30,
 
 
 
Six Months Ended
June 30,
 
 
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
($ in thousands)
 
 
 
($ in thousands)
 
 
Provision (benefit) for income taxes
$
(26,048
)
 
$
16,253

 
(260
)%
 
$
(15,476
)
 
$
29,834

 
(152
)%
We recognized a tax benefit in the three and six months ended June 30, 2015 compared to the same periods last year primarily due to the decrease in forecasted U.S. profit before taxes. Foreign losses decreased during the three and six months ended June 30, 2015 compared to the same periods last year primarily due to lower international research and development expenses. International research and development expenses include costs charged to foreign jurisdictions by LinkedIn Corporation.


Liquidity and Capital Resources
 
Six Months Ended
June 30,
 
2015
 
2014
 
(in thousands)
Condensed Consolidated Statements of Cash Flows Data:
 
 
 
Purchases of property and equipment
$
162,583

 
$
185,301

Depreciation and amortization
172,976

 
106,046

 
 
 
 
Cash flows provided by operating activities
$
390,774

 
$
257,294

Cash flows provided by (used in) investing activities
(427,923
)
 
(480,592
)
Cash flows provided by financing activities
30,103

 
63,875

As of June 30, 2015, we had cash and cash equivalents of $451.0 million and marketable securities of $2,582.4 million. Our cash equivalents and marketable securities are comprised primarily of U.S. treasury securities, U.S. agency securities, corporate debt securities, commercial paper and money market funds. As of June 30, 2015, the amount of cash and cash equivalents held by foreign subsidiaries was $221.4 million. If these funds are needed for our domestic operations, we would be required to accrue and pay United States taxes to repatriate these funds to the extent these funds exceed amounts owed to the United States parent entity. However, our intent is to permanently reinvest these funds outside the United States and our current plans do not

39


demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries. However, we believe the income tax liability would be insignificant if these earnings were to be repatriated.
On May 14, 2015, we completed our acquisition of lynda.com, a California-based privately held online learning company that offers an extensive, high quality library of professional training videos and courses. The acquisition of lynda.com positions us to be able to further expand on our long-term content strategy, and to realize our vision of building the world's first economic graph. The total purchase price for all of the outstanding equity interests of lynda.com consists of approximately $1.5 billion, subject to adjustment, in combination of approximately 52% in cash and approximately 48% in our Class A common stock.
We believe that our existing cash and cash equivalents and marketable securities balances, together with cash generated from operations, will be sufficient to meet our working capital expenditure requirements for at least the next 12 months.
Operating Activities
Operating activities provided $390.8 million of cash in the six months ended June 30, 2015. The cash flow from operating activities consisted primarily of the changes in our operating assets and liabilities, with an increase in deferred revenue of $63.4 million and an increase in accounts payable and other liabilities of $15.2 million, which is partially offset by an increase in prepaid expenses and other assets of $36.6 million and a decrease in income taxes, net of $17.2 million. The increase in our deferred revenue was primarily due to increases in transaction amounts in the six months ended June 30, 2015. We had a net loss in the six months ended June 30, 2015 of $109.9 million, which included non-cash stock-based compensation of $248.6 million and non-cash depreciation and amortization of $173.0 million.
Operating activities provided $257.3 million of cash in the six months ended June 30, 2014. The cash flow from operating activities consisted primarily of the changes in our operating assets and liabilities, with deferred revenue increasing $89.2 million, partially offset by an increase accounts receivable of $50.2 million, and excess tax benefit from stock-based compensation of $34.6 million, which is reclassified as a financing activity, an increase in accounts payable and other liabilities of $6.3 million and an increase in prepaid expenses and other assets of $22.0 million. The increase in our deferred revenue was primarily due to increases in transaction volumes in the six months ended June 30, 2014. We had a net loss in the six months ended June 30, 2014 of $14.3 million, which included non-cash stock-based compensation of $142.6 million and non-cash depreciation and amortization of $106.0 million.
Investing Activities
Our primary investing activities consisted of purchases of investments, purchases of property and equipment, as well as payments for acquisitions and intangible assets. We continued to invest in technology hardware to support our growth, software to support website functionality development, website operations and our corporate infrastructure. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations. Our planned purchases of property and equipment for 2015 are expected to be in the range of $575 million and $600 million.
In the six months ended June 30, 2015, we had net purchases, sales, and maturities of investments of $392.8 million and purchases of property and equipment of $162.6 million. In the six months ended June 30, 2014, we had net purchases of investments of $200.7 million and purchases of property and equipment of $185.3 million and payments for intangible assets and acquisitions, net of cash acquired of $89.9 million.

Financing Activities
In the six months ended June 30, 2015, and 2014, our financing activities consisted primarily of net proceeds from the issuance of common stock from employee stock option exercises and stock purchase plan, as well as the excess tax benefit from stock-based compensation. Additionally, in the six months ended June 30, 2015, we had repurchases of equity awards of $22.5 million, partially offset by proceeds from our issuance of preferred shares in our joint venture of $20.0 million.


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Off Balance Sheet Arrangements
In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties primarily for facility leases. As of June 30, 2015, we had financial guarantees of $47.0 million that were not recorded on our consolidated balance sheet that consisted of standby letters of credit and bank guarantees.


41


Contractual Obligations
Our principal obligations consist of our operating leases and 0.50% convertible senior notes. Our headquarters is located in Mountain View, California under a lease that expires in 2023. We also lease office space in locations throughout the United States and internationally, some of which is currently under construction. In addition, we have data centers in the United States and Singapore pursuant to various lease agreements. We have several significant long-term purchase obligations outstanding with third parties. We do not have any significant capital lease obligations. As of June 30, 2015, the following table summarizes our contractual obligations and the effect such obligations are expected to have on our liquidity and cash flow in future periods:
 
Payments Due by Period
 
Total
 
Less Than
1 Year
 
1 - 3
Years
 
3 - 5
Years
 
More Than
5 Years
 
(in thousands)
Operating lease obligations (1), (2) 
$
1,820,063

 
$
136,073

 
$
295,565

 
$
330,627

 
$
1,057,798

0.50% convertible senior notes (3)
1,355,342

 
6,392

 
13,225

 
1,335,725

 

Purchase obligations
63,390

 
40,174

 
23,216

 

 

______________________
(1)
Represents gross operating lease obligations, excluding sublease income of $216.3 million to be recognized over the next 12 years, which primarily relates to sublease income for several buildings we lease in Sunnyvale, California.
(2)
Subsequent to June 30, 2015, we leased additional office space for aggregate future minimum lease payments of approximately $65.2 million over a term of 11 years. The lease payments are estimated to begin in mid-2016. We also leased additional office space and purchased properties for aggregate commitments of $52.9 million, of which $15.9 million was paid in prior periods.
(3)
Represents the aggregate principal amount and related interest on our convertible senior notes. See Note 9, Convertible Senior Notes for additional information.
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
Contingent obligations arising from unrecognized tax benefits are not included in the contractual obligations because it is expected that the unrecognized benefits would only result in an insignificant amount of cash payments.

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, the valuation of goodwill and intangible assets, website and internal-use software development costs, leases, income taxes and legal contingencies have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2014 filed on February 12, 2015.

Recently Issued Accounting Guidance

See Note 1, Description of Business and Basis of Presentation, of the Notes to Condensed Consolidated Financial Statements under Item 1 for recently issued accounting guidance.
    


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Item 3. Quantitative and Qualitative Disclosure About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate, foreign exchange risks and inflation.
Interest Rate Fluctuation Risk
We had cash, cash equivalents, and marketable securities of $3,033.4 million and $3,443.3 million as of June 30, 2015 and December 31, 2014, respectively. This amount was invested primarily in money market funds and highly liquid investment grade fixed income securities. The cash, cash equivalents, and marketable securities are held for working capital purposes. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investments for trading or speculative purposes. At June 30, 2015, the weighted-average duration of our investment portfolio was less than one year.
Our fixed-income portfolio is subject to fluctuations in interest rates, which could affect our results of operations. Based on our investment portfolio balance as of June 30, 2015, a hypothetical increase in interest rates of 1% (100 basis points) would have resulted in a decrease in the fair value of our fixed-income portfolio of approximately $13.3 million.
Foreign Currency Exchange Risks
We have foreign currency exchange risks related to our revenue and operating expenses denominated in currencies other than the United States dollar, principally the British Pound Sterling, the Euro, the Australian dollar, and the Canadian dollar. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains (losses) related to changes in foreign currency exchange rates. In the event our foreign currency denominated assets, liabilities, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business.
We enter into foreign currency derivative contracts to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations.
Cash Flow Hedges
We use foreign currency derivative contracts designated as cash flow hedges to hedge forecasted revenue transactions denominated in currencies other than the U.S. dollar. Our cash flow hedges are carried at fair value with gains or losses initially recorded as a component of accumulated other comprehensive loss in stockholders’ equity and subsequently reclassified into revenue when the underlying hedged revenue is recognized.
Balance Sheet Hedges
We use other foreign currency derivative contracts not designated as hedging instruments (“balance sheet hedges”) to reduce exchange rate risk associated with our foreign currency denominated monetary assets and liabilities. These balance sheet hedges are carried at fair value with changes in the fair value recorded to other income (expense), net in our condensed consolidated statements of operations. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the hedged foreign currency denominated assets and liabilities.
As of June 30, 2015, we had total outstanding foreign currency derivative contracts with a total notional amount of $513.4 million. If overall foreign currency exchange rates appreciated uniformly by 5% against the United States Dollar, our foreign currency derivative contracts outstanding as of June 30, 2015 would experience a loss of approximately $10.7 million.
Market Risk and Market Interest Risk
On November 12, 2014, we issued $1,322.5 million aggregate principal amount of 0.50% convertible senior notes (the “Notes”). Holders may convert their notes prior to maturity under certain circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election. We intend to settle the principal and interest due on the Notes in cash. Concurrent with the issuance of the Notes, we purchased options (“Note Hedges”) and sold warrants, in order to reduce the potential economic dilution upon conversion of the Notes.

43


We do not have economic interest rate exposure related to the Notes, as they have a fixed annual interest rate of 0.50%. We do, however, have interest rate risk because the fair value of our Notes will generally increase when interest rates fall and decrease when interest rates rise. Additionally, the fair value of our Notes may be impacted by the price of our Class A common stock. As of June 30, 2015, the estimated fair value of our Notes was $1,330.3 million based on the closing trading price of the Notes as of the last day of trading for the period. See Note 9, Convertible Senior Notes, of the Notes of the Condensed Consolidated Financial Statements under Item 1 for additional information on the Notes, including the carrying value of the Notes.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Part II. Other Information

Item 1. Legal Proceedings

We are subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, certain pending patent and privacy matters, including class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Although occasional adverse decisions or settlements may occur, we do not believe that the final disposition of any of these matters will have a material adverse effect on our business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages, and include claims for injunctive relief. Additionally, our litigation costs are significant. Other regulatory matters could result in fines and penalties being assessed against us, and we may become subject to mandatory periodic audits, which would likely increase our regulatory compliance costs. Adverse results of litigation or regulatory matters could also result in us being required to change our business practices, which could negatively impact our membership and revenue growth.
We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Periodically, we evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, if any, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and our judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that we may be required to accrue for, we may be exposed to loss in excess of the amount accrued, and such amounts could be material.

Item 1A. Risk Factors
RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. If any of the following risks are realized, our business, operating results and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
We have a limited operating history in new and unproven markets, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We have a limited operating history in new and unproven markets that may not develop as expected. This limited operating history makes it difficult to effectively assess or forecast our future prospects. You should consider our business and prospects in light of the risks and difficulties we encounter or may encounter in these rapidly evolving markets. These risks and difficulties include our ability to, among other things:
hire, integrate and retain world class talent;
continue to earn and preserve our members’ trust with respect to their professional reputation and information;
develop and maintain scalable, high-performance technology infrastructure that can efficiently and reliably handle increased member usage globally while also implementing appropriate localization, as well as the deployment of new features and products;
avoid interruptions or disruptions in our service or slower than expected load times for our services;
create value for our members as well as increase the size of the overall network through new member growth;
responsibly use the data that our members share with us to provide solutions that make our members more productive and successful and that are critical to the talent, marketing and sales needs of enterprises and professional organizations;

45


process, store, protect and use personal data in compliance with governmental regulations, contractual obligations and other legal obligations related to privacy and security;
halt the operations of websites that aggregate our data and/ or combine it with data from other companies or sources, or copycat websites that have misappropriated our data;
increase revenue from the solutions we provide;
successfully adapt to mobile markets and optimize services for mobile devices;
successfully expand our business in markets outside the United States;
successfully compete with other companies that are currently in, or may in the future enter, the online professional networking space;
successfully build or integrate complementary businesses and products; and
defend ourselves against litigation, regulatory, intellectual property, privacy and other claims.
If the market for online professional networks does not develop as we expect, or if we fail to address the needs of this market, our business will be harmed. We may not be able to successfully address these risks and difficulties or others, including those described elsewhere in these risk factors. Failure to adequately address these risks and difficulties could harm our business and cause our operating results to suffer.
We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our services and solutions are accessible within an acceptable load time. Additionally, natural disasters or other catastrophic occurrences beyond our control could interfere with access to our services.
A key element to our continued growth is the ability of our members, users (whom we define as anyone who visits one of our websites through a computer or application on a mobile device, regardless of whether or not they are a member), enterprises and professional organizations in all geographies to access our websites, services and solutions within acceptable load times. We call this website performance. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our services simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. We expect it will become increasingly difficult to maintain and improve our website performance, especially during peak usage times and as our solutions become more complex and our total user traffic increases. If our services are unavailable when users attempt to access them or they do not load as quickly as users expect, users may seek other websites or services to obtain the information for which they are looking, and may not return to our website or use our services as often in the future, or at all. This would negatively impact our ability to attract members, enterprises and professional organizations and increase engagement of our members and users. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We have implemented a disaster recovery program, which allows us to move production traffic to a backup data center in the event of a catastrophe. For the majority of our services, we serve traffic out of multiple data centers in parallel. This allows us the ability to move traffic immediately and, in the event of a problem, the ability to recover in a short period of time. However, some of our services have not yet migrated to this model and still operate solely in a primary data center. In the event of a disaster, these services would remain shut down during the transition to a backup data center. To the extent our disaster recovery program does not effectively support the movement of traffic in a timely or complete manner in the event of a catastrophe, our business and operating results may be harmed.
Our systems are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks and similar events. Our U.S. corporate offices and certain of the facilities we lease to house our computer and telecommunications equipment are located in the San Francisco Bay Area and Southern California, both regions known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our hosting facilities could result in lengthy interruptions in our services.

46


We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to the growth of our business that may result from interruptions in our service as a result of system failures.
If our security measures are compromised, or if our websites are subject to attacks that degrade or deny the ability of members or customers to access our solutions, or if our member data is compromised, members and customers may curtail or stop use of our solutions.
Our solutions involve the collection, processing, storage, sharing, disclosure and usage of members’ and customers’ information and communications, some of which may be private. We also work with third party vendors to process credit card payments by our customers and are subject to payment card association operating rules. We are vulnerable to software bugs, computer viruses, break-ins, phishing attacks, employee errors or malfeasance, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or confidential information. For example, in June 2012, approximately 6.5 million of our members’ encrypted passwords were stolen and published on an unauthorized website. If we experience compromises to our security that result in website performance or availability problems, the complete shutdown of our websites, or the loss or unauthorized disclosure of confidential information, such as credit card information, our members or customers may be harmed or lose trust and confidence in us, and decrease the use of our website, mobile applications and services or stop using our services in their entirety, and we would suffer reputational and financial harm.
In addition, we may be subject to regulatory investigations or litigation in connection with a security breach or related issue, and we could also be liable to third parties for these types of breaches. Such litigation, regulatory investigations and our technical activities intended to prevent future security breaches are likely to require additional management resources and expenditures. If our security measures fail to protect this information adequately or we fail to comply with the applicable credit card association operating rules, we could be liable to both our customers for their losses, as well as the vendors under our agreements with them, we could be subject to fines and higher transaction fees, we could face regulatory action, and our customers and vendors could end their relationships with us, any of which could harm our business and financial results.
Our core value of putting our members first may conflict with the short-term interests of our business.
One of our core values is to make decisions based on the best long-term interests of our members, which we believe is essential to our success in increasing our member growth rate and engagement, creating value for our members and in serving the best, long-term interests of the company and our stockholders. Therefore, in the past, we have forgone, and may in the future forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of our members, even if our decision negatively impacts our operating results in the short term. In addition, our philosophy of putting our members first, as long as our members are adhering to our terms of service, may cause disagreements, or negatively impact our relationships, with our existing or prospective customers. This could result in enterprises and professional organizations blocking access to our services or refusing to purchase our Talent Solutions, Marketing Solutions or Premium Subscriptions. Our decisions may not result in the long-term benefits that we expect, in which case our member engagement, business and operating results could be harmed.
The number of our registered members is higher than the number of actual members and a substantial majority of our traffic is generated by a minority of our members. Our business may be adversely impacted if we are unable to attract and retain additional members who actively use our services.
The number of registered members in our network is higher than the number of actual members because some members have multiple registrations, other members have died or become incapacitated, and others may have registered under fictitious names or created fraudulent accounts. While the number of registered members represents what we believe to be reasonable estimates of our member base, there are inherent challenges in ensuring that the number of registered members presents an accurate reflection of our member network. For example, we do not have a reliable system for identifying and counting duplicate or fraudulent accounts, or deceased, incapacitated or other non-members and so we rely on estimates and assumptions, which may not be accurate. In addition, our methodology for measuring our membership numbers, and specifically for making estimates regarding non-members who should not be included as registered members, has changed over time and may continue to change from time to time. While we are using what we believe to be reasonable and appropriate methods of measuring the number of registered members, there are no methodologies available that would provide

47


us with an exact number of non-actual member types of accounts. Therefore, we cannot assure you that our current or future methodologies are accurate, and we will need to continue to adjust them in the future from time to time, which could result in the number of registered members being lower or higher than expected. Further, a substantial majority of our members do not visit our websites on a monthly basis, and a substantial majority of our desktop and mobile traffic is generated by a minority of our members. If the number of our actual members does not meet our expectations, if the rate at which we add new members slows or declines or if we are unable to increase the breadth and frequency of our visiting members, then our business may not grow as fast as we expect.
The tracking of certain of our performance metrics is done with internal tools and is not independently verified. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain performance metrics, including number of registered members, unique visiting members and member page views, with internal tools, which are not independently verified by any third party. Our internal tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithm or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer term strategies. If our performance metrics are not accurate representations of our member base or traffic levels, or if we discover material inaccuracies in our metrics, our reputation may be harmed and our operating and financial results could be adversely affected, causing our stock price to decline. In addition, historically, we reported information regarding certain of our internal metrics based on data provided by comScore, a leading provider of digital marketing intelligence. We recently began disclosing certain of these internal metrics, as opposed to reporting the comScore information, and inconsistency between these internal metrics and comScore data regarding our metrics could confuse investors or lead to questions about the integrity of our internal data.
If our members' profiles are out-of-date, inaccurate or lack the information that users and customers want to see, we may not be able to realize the full potential of our network, which could adversely impact the growth of our business.
If our members do not update their information or provide accurate and complete information when they join LinkedIn, or do not establish sufficient connections, the value of our network may be negatively impacted because our value proposition as a professional network and as a source of accurate and comprehensive data will be weakened. For example, customers of our Talent Solutions may not find members that meet their qualifications or may misidentify a candidate as having such qualifications, which could result in mismatches that erode customer confidence in our solutions, or our learning and development solutions may not suit our customers’ needs. Similarly, incomplete or outdated member information would diminish the ability of our Marketing or Sales Solutions customers to reach their target audiences and our ability to provide our customers with valuable insights. Therefore, we must provide features and products that demonstrate the value of our network to our members and motivate them to contribute additional, timely and accurate information to their profile and our network. If we fail to successfully motivate our members to do so, our business and operating results could be adversely affected.
Many individuals use mobile devices to access online services. If users of these devices do not widely adopt solutions we develop for these devices or if we are unable to effectively operate on mobile devices, our business could be adversely affected.
The number of people who access online services through mobile devices, such as smart phones, handheld tablets and mobile telephones, as opposed to personal computers, has increased dramatically in the past few years and is projected to continue to increase. If the mobile solutions we have developed do not meet the needs of prospective members, current members or customers, they may not sign up or reduce their usage of our platform and our business could suffer. Additionally, we are dependent on the interoperability of LinkedIn with popular mobile operating systems, networks and standards that we do not control, such as Android and iOS operating systems, and any changes in such systems and terms of service that degrade our solutions’ functionality, give preferential treatment to competitive products or prevent our ability to promote advertising could adversely affect traffic and monetization on mobile devices. We may not be successful in maintaining and developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards. Each manufacturer or distributor may establish unique technical standards for its devices, and our products and services may not work or be viewable on these devices as a result. Some manufacturers may also elect not to include our products on their devices. As new devices and new platforms are

48


continually being released, it is difficult to predict the challenges we may encounter in developing versions of our solutions for use on these alternative devices, and we are devoting significant resources to the support and maintenance of such devices.
Growth in access to LinkedIn’s services through mobile devices as a substitute for access on personal computers may negatively affect our revenue and financial results.
Our members are increasingly accessing LinkedIn on mobile devices. While many of our members who use our online services on mobile devices also access LinkedIn through personal computers, we have seen substantial growth in mobile usage. We are devoting valuable resources to solutions related to monetization of mobile usage, and cannot assure you that these solutions will be successful. If our members increasingly use mobile devices as a substitute for access to our online services as opposed to personal computers, and if we are unable to successfully implement monetization strategies for our solutions on mobile devices, or these strategies are not as successful as our offerings for personal computers, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.
Our solutions and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our solutions and internal systems rely on software that is highly technical and complex. In addition, our solutions and internal systems depend on the ability of our software to store, retrieve, process, and manage immense amounts of data. Our software has contained, and may now or in the future contain, undetected errors, bugs, or vulnerabilities. Some errors in our software may only be discovered after the code has been released for external or internal use. Errors or other design defects within our software may result in a negative experience for members or customers, delay product introductions or enhancements, or result in measurement or other errors. We also rely on third party software that may contain errors or bugs. Any errors, bugs, or defects discovered in our software or third party software we use could result in damage to our reputation, loss of members, loss of revenue, or liability for damages, any of which could adversely affect our business and financial results.
We collect, process, store, share, disclose and use personal information and other data, which subjects us to governmental regulations and other legal obligations related to privacy and security, and our actual or perceived failure to comply with such obligations could harm our business.
We collect, process, store, share, disclose and use information from and about our members, customers and users, including personal information and other data, and we enable our members to passively and proactively share their personal information with each other and with third parties and to communicate and share news and other information into and across our platform. There are numerous laws around the world regarding privacy and security, including laws regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our members and users. The scope of these laws is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other rules.
We strive to comply with applicable laws, policies, and legal obligations and certain applicable industry codes of conduct (such as the Digital Advertising Alliance’s self-regulatory principles for online behavioral advertising) relating to privacy and data protection and are subject to the terms of our privacy policies and privacy-related obligations to third parties. However, these obligations may be interpreted and applied in new ways and/or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Data privacy and security are active areas and new laws and regulations are likely to be enacted.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to members, customers or other third parties, or our privacy or security-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal or other information, which may include personally identifiable information or other member data, may result in governmental enforcement actions, litigation or public statements critical of us by consumer advocacy groups or others and could cause our members and customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws, our policies or other privacy or security-related obligations, such violations may also put our members’ information at risk and could in turn have an adverse effect on our business. Finally, governmental agencies may request or take member or customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.

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Public scrutiny of Internet privacy and security issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current products and solutions to our members and customers, thereby harming our business.
The regulatory framework for privacy and security issues worldwide is evolving and is likely to remain in flux for the foreseeable future. Various government and consumer agencies have also called for new regulation and changes in industry practices. Practices regarding the registration, collection, processing, storage, sharing, disclosure, use and security of personal and other information by companies offering online services have recently come under increased public scrutiny.
In the United States, the federal government, including the White House, the Federal Trade Commission, the Department of Commerce and Congress, and many state governments are reviewing the need for greater regulation of the collection, processing, storage, sharing, disclosure, use and security of information concerning consumer behavior with respect to online services, including regulations aimed at restricting certain targeted advertising practices and collection and use of data from mobile devices. This often results in the passing of new laws or the promulgation of new regulations. For example, the State of California and other states have passed laws relating to disclosure of companies’ practices with regard to Do-Not-Track signals from Internet browsers, the ability to delete information of minors, and new definitions that may impact data breach notification requirements. California has also adopted privacy guidelines with respect to mobile applications. In addition, the European Union may enact a new General Data Protection Regulation, which may result in significantly greater compliance burdens for companies with users and operations in the European Union. Outside the European Union and the United States, a number of countries have adopted or are considering privacy laws and regulations that may result in significant greater compliance burdens.
In addition, government agencies and regulators have reviewed, are reviewing and will continue to review, the privacy practices of online media companies including our privacy and security policies and practices. The FTC in particular has approved consent decrees resolving complaints and their resulting investigations into the privacy and security practices of a number of online social media companies. These reviews can and have resulted in changes to our products and policies, and could result in additional changes in the future. If we are unable to comply with any such reviews or decrees that result in recommendations or binding changes, or if the recommended changes result in degradation of our products, our business could be harmed.
Our business, including our ability to operate and expand internationally or on new technology platforms, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our websites, mobile applications, products, features or our privacy policy. In particular, the success of our business has been, and we expect will continue to be, driven by our ability to responsibly use data about our members. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry standards or practices regarding the storage, use or disclosure of data our members choose to share with us, or regarding the manner in which the express or implied consent of consumers for such use and disclosure is obtained. Such changes may require us to modify our products and features, possibly in a material manner, and may limit our ability to develop new products and features that make use of the data that we collect about our members.
Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.
We are subject to a variety of laws in the United States and abroad, including laws regarding privacy, data protection, data security, data retention and consumer protection, accessibility, sending electronic messages, human resource services and the provision of online payment services, including credit card processing, which are continuously evolving and developing. In addition, some of our members are subject to laws and/or licensing or certification obligations that may restrict their ability to engage with LinkedIn’s online services. The scope and interpretation of the laws and other obligations that are or may be applicable to us or certain groups of our members are often uncertain and may be conflicting, particularly laws and other obligations outside the United States. For example, laws related to the online dissemination of content of others and laws related to sending messages over online service are continuing to evolve and are being tested pursuant to actions based on, among other things, invasion of privacy, defamation, spam, and other torts, unfair competition, copyright and trademark infringement, credit reporting and other theories based on the nature and content of the materials and messages sent or provided by others.

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In addition, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning privacy, spam, data storage, data protection, content regulation, cybersecurity, government access to personal information and other matters that may be applicable to our business. Compliance with these laws may require substantial investment or may provide technical challenges for our business. It is also likely that as our business grows, evolves, and an increasing portion of our business shifts to mobile, and our solutions are used in a greater number of countries and additional groups, we will become subject to laws and regulations in additional jurisdictions. Further, as our services and solutions expand to include more content (including from third parties), additional laws and regulations may become applicable to our products and offerings including laws requiring us to restrict the availability of such content on a geographical basis or to certain groups of members. In some cases, laws and legal obligations of various jurisdictions may be ambiguous or conflict as to LinkedIn’s right to display and distribute certain content as part of its online services. Users of our site and our solutions could also abuse or misuse our products in ways that violate laws. It is difficult to predict how existing laws will be applied to our business and the new laws and legal obligations to which we may become subject.
If we are not able to comply with these laws or other legal obligations or if we (or our members) become liable under these laws or legal obligations, or if our services are suspended or blocked, we could be directly harmed, and we may be forced to implement new measures to reduce exposure to this liability. This may require us to expend substantial resources or to discontinue certain solutions, which would negatively affect our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.
We expect our operating results to fluctuate on a quarterly and annual basis, which may result in a decline in our stock price if such fluctuations result in a failure to meet the expectations of securities analysts or investors.
Our revenue and operating results have in the past and could in the future vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance, our projections or the expectations of securities analysts because of a variety of factors, many of which are outside of our control. Any of these events could cause the market price of our Class A common stock to fluctuate. Factors that may contribute to the variability of our operating results include:
our ability to create value for our members as well as increase the size of our member base;
our commitment to putting our members first even if it means forgoing short-term revenue opportunities;
shifts in the way members and users access our websites and services from personal computers to mobile devices;
disruptions or outages in the availability of our websites or services, actual or perceived breaches of privacy, and compromises of our member data;
changes in our pricing policies or those of our competitors;
our ability to increase sales of our products and solutions to new customers and expand sales of additional products and solutions to our existing customers;
the size and seasonal variability of our customers’ recruiting, marketing and sales budgets;
the extent to which existing customers renew their agreements with us and the timing and terms of those renewals;
general industry and macroeconomic conditions, in particular, deterioration in labor markets, which would adversely impact sales of our Talent Solutions, or economic growth that does not lead to job growth, for instance increases in productivity;
the cost of investing in our technology infrastructure, product initiatives, facilities and international expansion may be greater than we anticipate;
expenses related to hiring, incentivizing and retaining employees;
the timing and costs of expanding our field sales organization and delays or inability in achieving expected productivity;
the timing of certain expenditures, including hiring of employees and capital expenditures;

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the entrance of new competitors in our market whether by established companies or the entrance of new companies;
currency exchange rate fluctuations; and
changing tax laws and regulations.
Given our limited operating history and the rapidly evolving market of online professional networks, our historical operating results may not be indicative of our future operating results. We believe our rapid growth has masked the cyclicality and seasonality of our business. As our revenue growth rate has slowed, the cyclicality and seasonality in our business has become more pronounced, and we expect that to continue. This has, and will, cause our operating results to fluctuate. In addition, global economic concerns continue to create uncertainty and unpredictability and add risk to our future outlook. Sovereign debt issues and economic uncertainty in the United States, Europe and around the world raise concerns in markets important to our business. An economic downturn in any particular region in which we do business or globally could result in reductions in sales of our products, decreased renewals of existing arrangements and other adverse effects that could harm our operating results.
We expect our revenue growth rate to decline, and, as our costs increase, we may not be able to generate sufficient revenue to sustain profitability over the long term.

From 2009 to 2014, our annual net revenue grew from $120.1 million to $2,218.8 million, which represents a compounded annual growth rate of approximately 79%. As our net revenue has increased, our revenue growth rate has slowed, and we expect that it will continue to decline over time. We also expect that the growth rates of each of our primary product lines will fluctuate and that these product lines may not grow at the same rate. In recent years, and continuing into 2015, our philosophy has been to invest for future growth. We expect to continue to expend substantial financial and other resources on:

our technology infrastructure, including architecture, development tools scalability, availability, performance and security, as well as disaster recovery measures;

product development, including investments in our product development team and the development of new features for both members and customers, including those for mobile use and our Sales Solutions products;

sales and marketing, including a significant expansion of our field sales organization;

international expansion in an effort to increase our member base, member activity and sales;

general administration, including legal and accounting expenses related to our expanding global presence and the integration of newly acquired businesses; and

capital expenditures, including facilities and build-out of our data centers.

These investments may not result in increased revenue or business growth, or increased network growth or member value, and will increase our expenses. Even if our revenue continues to increase, we expect that due to increased expenses, in particular, stock-based compensation, depreciation and amortization and provision for income taxes, we may incur a GAAP loss during future periods including the second quarter of 2015. If we fail to continue to grow our revenue and overall business, our operating results and business would be harmed.

We face competition in the market for online professional networks from social networking sites and Internet search companies, among others, as well as continued competition for customers.
We face significant competition in all aspects of our business, and we expect such competition to increase, particularly in the market for online professional networks and engagement of professionals.
Our industry is evolving rapidly and is becoming increasingly competitive. Larger and more established companies may focus on our market and could directly compete with us. Smaller companies, including application developers, could also launch new products and services that compete with us and that could gain market acceptance quickly. We may also face competition if we shift our focus of development to new or different products or separate areas of our business.

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We expect our existing competitors in the markets for Talent Solutions, Marketing Solutions, Premium Subscriptions (including Sales Solutions) to continue to focus on these areas. A number of these companies may have greater resources than us, which may enable them to compete more effectively. Specifically, we are investing significantly in our Marketing Solutions products with respect to content and mobile solutions, and we may not be as successful as our competitors in generating revenue through new forms of content marketing or mobile advertising. Additionally, users of social networks may choose to use, or increase their use of, those networks for professional purposes, which may result in those users decreasing or eliminating their use of LinkedIn. Companies that currently focus on social networking could also expand their focus to professionals. We and other companies have historically established alliances and relationships with some of these companies to allow broader exposure to users and access to data on the Internet. We may also, in the future, establish alliances or relationships with other competitors or potential competitors. To the extent companies terminate such relationships and establish alliances and relationships with others, our business could be harmed. Additionally, other companies that provide content for professionals could develop more compelling offerings than ours. This could impact the engagement of our members, and could also compete with our Premium Subscriptions and adversely impact our ability to sell and renew subscriptions to our members. Specifically, we compete for members, enterprises and professional organizations as discussed below.
Members-professional networks. The space for online professional networks is rapidly evolving. Other companies such as Facebook, Google, Microsoft and Twitter are developing or could develop solutions that compete with ours. Further, some of these companies are partnering with third parties to offer products and services that could compete with ours. Additionally, we face competition from a number of companies outside the United States that provide online professional networking solutions. We also compete against smaller companies that focus on groups of professionals within a specific industry or vertical. Our competitors may announce new products, services or enhancements that better address changing industry standards or the needs of members and customers, such as mobile access or different market focus. Any such increased competition could cause pricing pressure, loss of business or decreased member activity, any of which could adversely affect our business and operating results. Internet search engines could also change their methodologies in ways that adversely affect our ability to optimize our page rankings within their search results.
Enterprises and professional organizations-Talent Solutions. With respect to our Talent Solutions, we compete with online recruiting companies, talent management companies and larger companies that are focusing on talent management and human resource services, job boards, traditional recruiting firms, and companies that provide learning and development products and services. Additionally, other companies, including newcomers to the recruiting or learning and development industries, may partner with Internet companies, including social networking companies, to provide services that compete with our solutions, either on their own or as third party applications. If the efficiency and usefulness of our products to enterprises and professional organizations do not exceed those provided by competitors, we will not be able to compete successfully.
Enterprises and professional organizations-Marketing Solutions. With respect to our Marketing Solutions, we compete with online and offline outlets that generate revenue from advertisers and marketers. To the extent competitors are better able to provide customers with cost-effective access to attractive demographics, either through new business models or increased user volume, we may not be successful in retaining our existing advertisers or attracting new advertisers, and our business would be harmed.
Enterprises and professional organizations-Premium Subscriptions/Sales Solutions. With respect to our Premium Subscriptions and Sales Solutions, we compete with online and offline companies for customers with lead generation and customer intelligence and insights. Our Sales Solutions product is in the early stages, and we may not be able to compete effectively in this area.
If we fail to effectively manage our growth, our business and operating results could be harmed.
We continue to experience rapid growth in our headcount and operations, which will continue to place significant demands on our management and our operational and financial infrastructure. As of June 30, 2015, approximately 40% of our employees had been with us for less than one year and approximately 60% for less than two years. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees in various countries around the world, and we must maintain the beneficial aspects of our corporate culture. We intend to continue to make substantial investments to expand our engineering, research and development, field sales, and general and administrative organizations, and our international operations. To attract top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those employees. In addition, fluctuations in the price of our

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Class A common stock may make it more difficult or costly to use equity compensation to motivate, incentivize and retain our employees. We face significant competition for talent from other Internet and high-growth companies, which include both publicly traded and privately-held companies. As we have transitioned from a private company to a public company, this competition has become even more acute in assessing appropriate compensation packages, particularly, determining the mix of cash and equity compensation. The risks of over-hiring (especially given overall macroeconomic risks) or over-compensating employees and the challenges of integrating a rapidly growing employee base into our corporate culture are exacerbated by our international expansion. Additionally, because of our growth, we have significantly expanded our operating lease and purchase commitments, which have increased our expenses. We may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.
Additionally, if we do not effectively manage the growth of our business and operations, the quality of our solutions could suffer, which could negatively affect our brand, operating results and overall business. Further, we have made changes in the past, and will make changes in the future, to our features, products and services that our members or customers may not like, find useful or agree with. We may also decide to discontinue certain features, products or services, or charge for certain features, products or services that are currently free or increase fees for any of our features, products or services. If members or customers are unhappy with these changes, they may decrease their engagement on our site, or stop using features, products or services or the site generally. In addition, they may choose to take other types of action against us such as organizing petitions or boycotts focused on our company, our website or any of our services, filing claims with the government or other regulatory bodies, or filing lawsuits against us. Any of these actions could negatively impact our member growth and engagement and our brand, which would harm our business. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls, and our reporting systems and procedures by, among other things:
improving our information technology infrastructure to maintain the effectiveness of our solutions;
enhancing information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other and our growing base of members, enterprises and professional organizations;
enhancing our internal controls to ensure timely and accurate reporting of all of our operations; and
appropriately documenting our information technology systems and our business processes.
These systems enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to implement these improvements effectively, our ability to manage our expected growth and comply with the rules and regulations that are applicable to publicly reporting companies will be impaired.
Our international operations account for a significant portion of our revenue and are subject to increased challenges and risks.
We have offices around the world and our websites and mobile applications are available in numerous languages. For the three and six months ended June 30, 2015, international revenue represented 38% of our total revenue. We expect to continue to expand our international operations in the future, particularly in emerging markets, by opening offices in different countries and expanding our offerings in new languages. However, we have limited operating history as a company outside the United States, and our ability to manage our business and conduct our operations internationally including in emerging markets, requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems and commercial infrastructures. International expansion has required and will continue to require us to invest significant funds and other resources. Operating internationally subjects us to new risks and may increase risks that we currently face, including risks associated with:
recruiting and retaining talented and capable employees in foreign countries, and maintaining our company culture across all of our offices;
providing solutions across a significant distance, in different languages, in competitive market environments and among different cultures, including modifying - or in some cases building entirely new - services, solutions and features to ensure that they are culturally relevant in different countries and

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conforming to local laws and regulations, which may include modifying or blocking content in certain jurisdictions if it is deemed objectionable or unlawful;
increased competition from local websites and services, that provide online professional networking solutions, online recruitment services and learning and development products, which may benefit from first-mover advantages. These competitors have expanded and may continue to expand their geographic footprint;
differing and potentially lower levels of member growth and activity in new and nascent geographies;
compliance with applicable foreign laws and regulations, which may change or conflict with each other, as well as potential risk of penalties to individual members of management if our practices are deemed to be out of compliance;
longer payment cycles in some countries;
credit risk and higher levels of payment fraud;
stringent local labor laws and regulations;
laws and regulations that favor local competitors or prohibit or limit foreign ownership of businesses;
legal regimes where the application of laws and regulations is subject to greater uncertainty, as well as higher risk of corruption, fraud and unethical business practices;
compliance with anti-bribery laws including, without limitation, compliance with the Foreign Corrupt Practices Act and the UK Anti-Bribery Act;
implementing and maintaining effective internal processes and controls;
compliance with various economic and trade sanctions regulations which restrict certain conduct of business;
currency exchange rate fluctuations;
foreign exchange controls that might prevent us from repatriating cash earned outside the United States;
foreign exchange controls that might require significant lead time in setting up operations and bank accounts before monetizing our operations in certain geographic territories;
political or social unrest, or, economic instability in some countries;
pressure on the creditworthiness of sovereign nations or liquidity;
laws and proposed legislation relating to data localization in various countries, which may restrict our ability to do business in new and existing markets;
double taxation of our non-U.S. earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and
higher costs of doing business internationally.
If our revenue from our international operations, and particularly from our operations in the countries and regions on which we have focused our spending, do not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer. In addition, as our member base expands internationally, members in certain geographies may have lower levels of activity with our websites and services.
Finally, in late 2013, we established a joint venture to expand our operations in the People’s Republic of China ("PRC"), which is in its early stages. Although we believe this joint venture and our activities in the PRC comply with existing laws, they involve unique risks, and the PRC is actively considering changes in its foreign investment rules that could impact this structure and our activities. There are substantial uncertainties regarding the interpretation of PRC laws and regulations, and it is possible that the government will ultimately take a view contrary to ours. We may be unable to continue to operate in the PRC if we or our affiliates are unable to access sufficient funding or enforce contractual relationships with respect to management and control of such business. In addition, the PRC’s laws and regulations, as they apply to our business operations in Mainland China, have resulted in modifications to our products and services in Mainland China. For example, the PRC government has laws and regulations that govern the dissemination of content over the Internet, and it may enact additional laws or regulations in the future related to content, privacy, security and government access to personal information in a way that may materially

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impact our ability to conduct operations in the PRC. Failure to comply with these requirements may mean that we will not obtain or retain necessary licenses to operate all or some of our services in Mainland China or result in the blocking of our services in Mainland China. In addition, our compliance with these rules could harm our business, reputation and brand outside of China. We will need to allocate significant resources to developing our presence in China, and we may not be successful in doing so.
Our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of members, enterprises and professional organizations, our ability to increase their level of engagement and our ability to attract and retain high level employees.
We have developed a strong and trusted brand that we believe has contributed significantly to the success of our member network and business. Our brand is predicated on the idea that individual professionals will trust us and find immense value in building and maintaining their professional identities and reputations on our platform. Maintaining, protecting and enhancing the “LinkedIn” and related brands is critical to expanding our base of members, enterprises, advertisers, corporate customers and other partners, and increasing their engagement with our services, and will depend largely on our ability to maintain member trust, be a technology leader and continue to provide valuable and high-quality solutions, which we may not do successfully. Despite our efforts to protect our brand and prevent its misuse, if others misuse our brand or pass themselves off as being endorsed or affiliated with us, it could harm our reputation and our business could suffer. If our members or potential members determine that they can use other platforms, such as social networks, for the same purposes as or as a replacement for our network, or if they choose to blend their professional and social networking activities, our brand and our business could be harmed. Our members or customers could find that new products or features that we introduce are difficult to use or may feel that they degrade their experience with online service offered by LinkedIn, which could harm our reputation for delivering high-quality products. Our brand is also important in attracting and maintaining high performing employees. If we do not successfully maintain a strong and trusted brand, our business could be harmed.
We may not be able to halt the operations of online services that aggregate our data as well as data from other companies, including social networks, or copycat online services that have misappropriated our data in the past or may misappropriate our data in the future. These activities could harm our brand and our business.
From time to time, third parties have accessed data from our networks through scraping, robots or other means and used this data or aggregated this data on their online services with other data. In addition, “copycat” online services have misappropriated data on our network and attempted to imitate our brand or the functionality of our services, and these services or others could use similar tactics to develop products that compete with ours. These activities could degrade our brand, negatively impact our website performance and harm our business. When we have become aware of such online services, in many instances we have employed contractual, technological or legal measures in an attempt to halt unauthorized activities, but these measures may not be successful. In addition, if our customers do not comply with our terms of service, they also may be able to abuse our products and services and provide access to our solutions to unauthorized users. However, we may not be able to detect any or all of these types of activities in a timely manner and, even if we could, technological and legal measures may be insufficient to stop their operations. In some cases, particularly in the case of online services operating from outside of the United States, our available legal remedies may not be adequate to protect our business against such activities. Regardless of whether we can successfully enforce our rights against these parties, any measures that we may take could require us to expend significant financial or other resources.
Failure to protect or enforce our intellectual property rights could harm our business and operating results.
We regard the protection of our trade secrets, copyrights, trademarks, trade dress, databases, domain names and patents as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights and other rights provided under foreign laws. These laws are subject to change at any time and could further restrict our ability to protect our intellectual property. In addition, the existing laws of certain foreign countries in which we operate may not protect our intellectual property rights to the same extent as do the laws of the United States. We also have a practice of entering into confidentiality and invention assignment agreements with our employees and contractors, and often enter into confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. In addition, from time to time we make our intellectual property available to others under license agreements. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the

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misappropriation of our proprietary information, infringement of our intellectual property rights or deter independent development of similar or competing technologies by others and may not provide an adequate remedy in the event of such misappropriation or infringement.
Obtaining and maintaining effective intellectual property rights is expensive, including the costs of defending our rights. We are seeking to protect our trademarks and patents, and other intellectual property rights in a number of jurisdictions, a process that is expensive and may not be successful in all jurisdictions for every such right. Even where we have such rights, they may later be found to be unenforceable or have a limited scope of enforceability. In addition, we may not seek to pursue such protection in every location. In particular, we believe it is important to maintain, protect and enhance our brands. Accordingly, we pursue the registration of domain names and our trademarks and service marks in the United States and in many locations outside the United States. We have already and may, over time, increase our investment in protecting innovations through investments in patents and similar rights, and this process is expensive and time-consuming.
Litigation may be necessary to enforce our intellectual property rights, protect our proprietary rights or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and operating results. We may incur significant costs in enforcing our trademarks against those who attempt to imitate our “LinkedIn” brand and other valuable trademarks and service marks.
In addition, we have chosen to make certain of our technology available under open source licenses that allow others to use the technology without payment to us. While we hope to benefit from these activities by having access to others’ useful technology under open source licenses, there is no assurance that we will receive the business benefits we expect.

If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed, and the market price of our Class A common stock could decline.
We are, and expect in the future to be, subject to legal proceedings and litigation, including intellectual property and privacy disputes, which are costly to defend and could materially harm our business and operating results.
We are party to lawsuits and legal proceedings in the normal course of business. These matters are often expensive and disruptive to normal business operations. We are currently facing, or may face in the future, allegations, lawsuits and regulatory inquiries, audits and investigations regarding data privacy, security, labor and employment, consumer protection, the Fair Credit Reporting Act and intellectual property infringement, including claims related to privacy, patents, publicity, trademarks, copyrights and other rights. Litigation and regulatory proceedings, and particularly the patent infringement and class action matters we are facing or may face, may be protracted and expensive, and the results are difficult to predict. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages, and include claims for injunctive relief. Additionally, our litigation costs are significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products and features or require us to stop offering certain features, all of which could negatively impact our membership and revenue growth. Additionally, we are subject to mandatory periodic audits, which would likely increase our regulatory compliance costs, and may require us to change our business practices, which could negatively impact our revenue growth. Managing legal proceedings, litigation and audits, even if we achieve favorable outcomes, is time-consuming and diverts management’s attention from our business.
In addition, we use open source software in our solutions and plan to continue to use open source software in the future. The terms of many open source licenses have not been interpreted by United States or other courts, and these licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products. We may face claims from others claiming ownership of open source software or patents related to that software, or breach of open source license terms, including a demand for release of material portions of our source code or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, which could be costly to defend, require us to purchase a costly license, require us to establish additional specific open source compliance procedures, or require us to devote additional research and development resources to remove open source elements from or otherwise change our solutions, any of which would have a negative effect on our business and operating results. In addition, if we were to combine our own software with open source software in a certain manner, we could, under certain open source licenses, be required

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to release the source code of some software that would be valuable to keep as a trade secret and/or not make available for use by others which would have a material adverse effect on our business, results of operations or financial condition.
The results of regulatory proceedings, litigation, claims and audits cannot be predicted with certainty, and determining reserves for pending litigation and other legal, regulatory and audit matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are not resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or, resolve them, could harm our business, our operating results, our reputation or the market price of our Class A common stock.
If we do not continue to attract new customers, or if existing customers do not renew their subscriptions, renew on less favorable terms, or fail to purchase additional solutions, we may not achieve our revenue projections, and our operating results would be harmed.
In order to grow our business, we must continually attract new customers, sell additional solutions to existing customers and reduce the level of non-renewals in our business. Our ability to do so depends in large part on the success of our sales and marketing efforts. We do not typically enter into long-term contracts with our customers, and even when we do, they can generally terminate their relationship with us. We may not accurately predict future trends with respect to rates of customer renewals, upgrades and expansions. Furthermore, the nature of our products and solutions is such that customers may decide to terminate or not renew their agreements with us without causing significant disruptions to their own businesses.
We must demonstrate that our Talent Solutions are important recruiting and learning and development tools for enterprises and professional organizations and that our Marketing and Sales Solutions provide them with access to an audience of one of the most influential, affluent and highly educated audiences on the Internet. However, potential customers may not be familiar with our solutions or may prefer other or more traditional products and services for their talent, advertising and marketing needs.
Our customer base and our customers’ renewal rates may decline or fluctuate because of several factors, including the prices of our solutions, the prices of products and services offered by our competitors, reduced hiring by our customers or reductions in their talent or marketing spending levels due to macroeconomic or other factors and the efficacy and cost-effectiveness of our solutions. If we do not attract new customers or if our customers do not renew their agreements for our solutions, renew on less favorable terms, or do not purchase additional functionality or offerings, our revenue may grow more slowly than expected or decline.
Ultimately, attracting new customers and retaining existing customers requires that we continue to provide high quality solutions that our customers value. In particular, our Talent Solutions customers will discontinue their purchases of our solutions if we fail to effectively connect them with the talent they seek or provide learning and development opportunities that they are looking for, and our premium subscribers will discontinue their subscriptions if they do not find the networking and business opportunities that they value. Similarly, customers of our Marketing Solutions will not continue to do business with us if their advertisements do not reach their intended audiences. Therefore we must continue to demonstrate to our customers that using our Marketing Solutions is the most effective and cost-efficient way to maximize their results. Even if our Marketing Solutions are providing value to our customers, advertisers are sensitive to general economic downturns and reductions in consumer spending, among other events and trends, which generally results in reduced advertising expenditures and could adversely affect sales of our Marketing Solutions. In addition, we have recently expanded our Marketing Solutions products to include off-network advertising. This product area will complement our current offerings primarily sold on our wholly owned properties, and we may not be successful or our customers or members may not be receptive to these products. Finally, we are in the early stages of developing our Sales Solutions products which may not be successful. If we fail to provide high quality solutions and convince customers of our value proposition, we may not be able to retain existing customers or attract new customers, which would harm our business and operating results.
Because we recognize most of the revenue from our Talent Solutions and our Premium Subscriptions over the term of the agreement, a significant downturn in these businesses may not be immediately reflected in our operating results.
We recognize most of the revenue from sales of our Talent Solutions and Premium Subscriptions over the terms of the agreements, which is typically 12 months. As a result, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. Consequently, a decline in new

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or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in the sales of these offerings may not be reflected in our short-term results of operations.
We depend on world class talent to grow and operate our business, and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain world class talent. Our ability to execute efficiently is dependent upon contributions from all of our employees, in particular our senior management team. Key institutional knowledge remains with a small group of long-term employees whom we may not be able to retain. We may not be able to retain the services of any of our long-term employees or other members of senior management in the future. For example, two of our executive officers left the company in 2014. We do not have employment agreements other than offer letters with any key employee, and we do not maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed.
Our growth strategy also depends on our ability to expand and retain our organization with world class talent. Identifying, recruiting, training and integrating qualified individuals will require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best talent. Competition for these resources, particularly for engineers, is intense, and competition for the facilities to house our employees is also intense, specifically in the San Francisco Bay Area, where our headquarters is located. We may need to invest significant amounts of cash and equity for new employees and we may never realize returns on these investments, and we also are investing heavily in our facilities. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.
We believe that our culture has the potential to be a key contributor to our success. In 2014, we increased the size of our workforce by more than 37% as compared to 2013, and we expect to continue to hire aggressively as we expand. If we do not continue to develop our corporate culture as we grow and evolve, including maintaining our culture of transparency with our employees, it could harm our ability to foster the innovation, creativity and teamwork we believe we need to support our growth. In addition, we completed our initial public offering in May 2011. As a result, employees who have been with us since that time (or prior to May 2011) have been able to and may continue to realize substantial financial gains in connection with the sales of their shares from the exercise of their vested options, which could result in a loss of employees. There will likely be disparities of wealth between those of our employees whom we hired prior to our initial public offering in May 2011 and those who joined us after we became a public company, which could adversely impact relations among employees and our culture in general.
The effectiveness of our Marketing Solutions depends in part on our relationships with advertising serving technology companies.
We rely, in part, on advertising serving technology companies to deliver our Marketing Solutions product. Our agreements with these companies may not be extended or renewed after their respective expirations, or we may not be able to extend or renew our agreements on terms and conditions favorable to us. If these agreements are terminated, we may not be able to enter into agreements with alternative companies on acceptable terms or on a timely basis or both, which could negatively impact revenue from our Marketing Solutions.
Enterprises or professional organizations, including governmental agencies, may restrict access to our services, which could lead to the loss or slowing of growth in our member base or the level of member engagement.

Our solutions depend on the ability of our members to access the Internet and our services. Enterprises or professional organizations, including governmental agencies, could block or restrict access to our online services, website or the Internet generally for a number of reasons such as security or confidentiality concerns or regulatory reasons, or they may adopt policies that prohibit listing the employers’ names on the employees’ LinkedIn profiles in order to minimize the risk that employees will be contacted and hired by other employers.


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In some cases, certain governments may seek to restrict the Internet or our service providers’ websites, services and solutions and the performance of our websites, services and solutions could be suspended, blocked (in whole or part) or otherwise adversely impacted in these jurisdictions. For example, the government of the People’s Republic of China has blocked access to many social networking and other sites (including ours for a brief period), and certain self-regulatory organizations have policies that could result in access to our content, services or features being blocked. Any restrictions on the use of our services by our members and users could lead to the loss or slowing of growth in our member base or the level of member engagement.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our member and non-member engagement could decline.
We depend in part on various Internet search engines to direct a significant amount of traffic to our website. Similarly, we depend on providers of mobile application “store fronts” to allow users to locate and download our mobile applications that enable our service. Our ability to maintain the number of visitors directed to our website and users of our online services is not entirely within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in an attempt to improve their search results, which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our new user growth or in ways that make it harder for our members to use our website, or if our competitors’ SEO efforts are more successful than ours, overall growth in our member base could slow, member and non-member engagement could decrease, and we could lose existing members. These modifications may be prompted by search engine companies entering the online professional networking market or aligning with competitors. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our websites would harm our business and operating results.
Our business depends on continued and unimpeded access to the Internet by us and our members on personal computers and mobile devices. If government regulations relating to the Internet or other areas of our business change, if Internet access providers are able to block, degrade, or charge for access to certain of our products and services, or if third parties disrupt access to the Internet, we could incur additional expenses and the loss of members and customers.
Our products and services depend on the ability of our members and customers to access the Internet through their personal computers and mobile devices. Currently, this access is provided by companies that have significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies, and government-owned service providers, any of whom could take actions that degrade, disrupt, or increase the cost of user access to our products or solutions, which would, in turn, negatively impact our business. In addition, Internet or network access could be disrupted by other third parties. Further, the adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws limiting Internet neutrality, could decrease the demand for our subscription service or the usage of our services and increase our cost of doing business.

Our growth depends in part on the success of our strategic relationships with third parties.
We anticipate that we will continue to depend on relationships with various third parties, including access to platforms and content providers to grow our business, as well as channel partners. Identifying, negotiating and maintaining relationships with third parties require significant time and resources, as does integrating third-party content and technology. Our agreements with technology and content providers and similar third parties are typically non-exclusive and do not prohibit them from working with our competitors or from offering competing services. In some cases, in particular, with respect to content providers, these relationships are undocumented, or, if there are agreements in place, they may be easily terminable. Our competitors may be effective in providing incentives to these parties to favor their solutions or may prevent us from developing strategic relationships with these parties. These third parties may decide that working with LinkedIn is not in their interest. In addition, these third parties may not perform as expected under our agreements with them, and we have had, and may in the future have, disagreements or disputes with these parties, which could negatively affect our brand and reputation. It is possible that these third parties may not be able to devote the resources we expect to the relationship or they may terminate their relationships with us. Further, as users increasingly access our services through mobile devices, we are becoming more dependent on the distribution of our mobile applications through third parties, and we may not be able to access their application program interfaces or be able to distribute our applications or provide ease of integration, and this may also impact our ability to monetize our mobile products. If we are

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unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our business could be impaired, and our operating results would suffer. Even if we are successful, these relationships may not result in improved operating results.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency, and accept payment from customers in currencies other than the U.S. dollar. Since we conduct business in currencies other than U.S. dollars but report our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. Consequently, exchange rate fluctuations between the U.S. dollar and other currencies could have a material impact on our profitability, and because we recognize revenue over time, exchange rate fluctuations at one point in time may have a negative impact in future quarters. Although we hedge a portion of our foreign currency exposure, significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our net income (loss). Additionally, hedging programs rely on our ability to forecast accurately and could expose us to additional risks that could adversely affect our financial condition and results of operations.
The intended tax efficiency of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how we operate our business, and changes to our effective tax rate could adversely impact our results.
Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to optimize business efficiency as well as reduce our worldwide effective tax rate. The application of the tax laws of various jurisdictions, including the United States and the other jurisdictions in which we operate, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or for transfer pricing on intercompany arrangements. In particular, our non-U.S. headquarters is located in Dublin, Ireland, but tax authorities in other jurisdictions where we operate may make a determination that the manner in which we operate results in our business not achieving the intended tax consequences. This could increase our worldwide effective tax rate and harm our financial position and results of operations. Our effective tax rate could be adversely affected by several other factors, many of which are outside of our control, such as: increases in expenses that are not deductible for tax purposes, the tax effects of restructuring charges or purchase accounting for acquisitions, changes related to our ability to ultimately realize future benefits attributed to our deferred tax assets, including those related to other-than-temporary impairment, and a change in our decision to indefinitely reinvest foreign earnings. Further, we are currently undergoing review and audit by both domestic and foreign tax authorities and expect such actions to continue in the future. Any adverse outcome of such a review or audit could have a negative effect on our operating results and financial condition.
The enactment of legislation implementing changes in the U.S. taxation of international business activities, the adoption of other tax reform policies or changes in tax legislation or policies in jurisdictions outside the United States could materially impact our financial position and results of operations.
Possible future changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings and adversely impact our effective tax rate. Due to the large and expanding scale of our international business activities, any changes in the U.S. or international taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.
The tax authorities in Ireland have announced changes to the treatment of non-resident Irish entities, commonly used in a “double Irish” structure. The changes will impact newly created Irish entities immediately but are not expected to impact existing non-resident Irish entities, such as ours, until after December 31, 2020. These changes may adversely impact our effective tax rate and harm our financial position and results of operations. The United Kingdom has also recently proposed new tax legislation on diverted profits which may ultimately impact our foreign tax liability and negatively impact our effective tax rate and results of operations.

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Additionally, the Organisation for Economic Co-Operation and Development recently released draft guidance covering various topics, including addressing the “tax challenges of the digital economy,” country-by-country reporting, and definitional changes to permanent establishment, which could ultimately impact our tax liabilities to foreign jurisdictions and treatment of our foreign earnings from a U.S. perspective which may adversely impact our effective tax rate and harm our financial position and results of operations.

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we have engaged and may continue to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
Acquisitions and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.
We have made and will continue to make acquisitions to add employees, complementary companies, products, or technologies or revenue. These transactions could be material to our financial condition and results of operations. We also expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to complete acquisitions on favorable terms, if at all. The process of integrating an acquired company, business, or technology has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks include:
loss of key employees of the acquired company and other challenges associated with integrating new employees into our culture, as well as reputational harm if integration is not successful;
diversion of management time and focus from operating our business to acquisition integration challenges;
implementation or remediation of controls, procedures, and policies at the acquired company;
integration of the acquired company’s accounting, human resource, and other administrative systems, and coordination of product, engineering, and sales and marketing function;
assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;
failure to successfully further develop the acquired technology;
difficulty of transitioning the acquired technology onto our existing platforms and maintaining the security standards for such technology consistent with our other services;
failure to successfully onboard customers or maintain brand quality of acquired companies;
liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and
failure to accurately forecast the financial impact of an acquisition transaction, including accounting charges.

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These risks or other problems encountered in connection with our acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and adversely affect our business generally.
Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition. In addition, any acquisitions we announce could be viewed negatively by users, marketers, developers or investors.
Risks Related to Our Class A Common Stock
The dual class structure of our common stock as contained in our charter documents has the effect of concentrating voting control with those stockholders who held our stock prior to our initial public offering, including our founders and our executive officers, employees and directors and their affiliates, and limiting our other stockholders’ ability to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. Stockholders who hold shares of our Class B common stock, including our founders, and our executive officers, employees and directors and their affiliates, together held approximately 57.7% of the voting power of our outstanding capital stock as of June 30, 2015. Our co-founder and Chair, Reid Hoffman, held approximately 11.1% of the outstanding shares of our Class A and Class B common stock, representing approximately 53.4% of the voting power of our outstanding capital stock as of June 30, 2015. Mr. Hoffman has significant influence over the management and affairs of the company and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. Mr. Hoffman will continue to have significant influence over these matters in the future.
In addition, the holders of our Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even though their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit the ability of our Class A stockholders to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.
If Mr. Hoffman continues to retain a significant portion of his holdings of Class B common stock for an extended period of time, he could continue to control a majority of the combined voting power of our Class A and Class B common stock. As a board member, Mr. Hoffman owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Hoffman is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.
Our stock price has been volatile in the past and may be subject to volatility in the future.
The trading price of our Class A common stock has been volatile historically, and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Between January 1, 2015 and July 29, 2015, the closing price of our Class A common stock ranged from $193.80 to $270.76. Fluctuations in the valuation of companies perceived by investors to be comparable to us or in valuation metrics, such as our price to earnings ratio, could impact our stock price. Additionally, the stock markets have at times experienced extreme price and volume fluctuations that have affected and might in the future affect the market prices of equity securities of many companies. These fluctuations have, in some cases, been unrelated or disproportionate to the operating performance of these companies. Further, the trading prices of publicly traded shares of companies in our industry have been particularly volatile and may be very volatile in the future. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes, international currency fluctuations or political unrest, may negatively impact the market price of our Class A common stock. Volatility in our stock price also impacts the value of our equity compensation, which affects our ability to recruit and retain employees. In addition, some companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

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There may be a limited market for investors in our industry.
There are few publicly traded companies in the social and professional networking and related industries at this time, and we were among the first social networking companies to go public. Investors may have limited funds to invest in the social and professional networking sector, and as publicly traded securities in these industries become more available, investors who have purchased or may in the future purchase securities in this sector may choose to sell LinkedIn securities that they have already purchased in favor of other companies, and/or choose to invest in other companies, including our competitors. As a result, demand for our Class A common stock could decline, which would result in a corresponding decline in our stock price.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:
authorize our board of directors to issue, without further action by the stockholders, up to 100,000,000 shares of undesignated preferred stock;
require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the Chair of our board of directors, or our Chief Executive Officer;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms;
prohibit cumulative voting in the election of directors;
provide that our directors may be removed only for cause;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
require the approval of our board of directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation; and
reflect two classes of common stock, as discussed above.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Provisions in the indenture related to our convertible debt may also deter or prevent a business combination. In addition, institutional shareholder representative groups, shareholder activists and others may disagree with our corporate governance provisions or other practices, including our dual class structure and the other anti-takeover provisions, such as those listed above. We generally will consider recommendations of institutional shareholder representative groups, but we will make decisions based on what our board and management believe to be in the best long term interests of our company and stockholders. Our dual class structure concentrates the voting power of our stock in a small group of stockholders who would have the ability to control the outcome of a stockholder vote. Additionally, these groups could make recommendations to our stockholders against our practices or our board members if they disagree with our positions. Finally, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

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If securities or industry analysts publish reports that are interpreted negatively by the investment community or publish negative research reports about our business, our share price and trading volume could decline.
The trading market for our Class A common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts or the information contained in their reports. If one or more analysts publish research reports that are interpreted negatively by the investment community, or have a negative tone regarding our business, financial or operating performance, industry or end-markets, our share price could decline. In addition, if a majority of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Risks Related to our Convertible Notes
Servicing our convertible notes may require a significant amount of cash, and we may not have sufficient cash flow or the ability to raise the funds necessary to satisfy our obligations under the convertible notes, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the convertible notes.
In November 2014, we issued approximately $1.3 billion aggregate principal amount of 0.50% convertible senior notes due 2019 (the "Notes"). As of June 30, 2015, we had a total par value of approximately $1.3 billion of outstanding Notes. Holders of the Notes will have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change before the relevant maturity date, in each case at a repurchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the fundamental change repurchase date. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional shares), we will be required to make cash payments in respect of the Notes being converted. Moreover, we will be required to repay the Notes in cash at their maturity, unless earlier converted or repurchased.
Our ability to make cash payments in connection with conversions of the Notes or repurchase the Notes in the event of a fundamental change will depend on market conditions and our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We also may not use the cash raised through the issuance of the Notes in an optimally productive and profitable manner. At the time we are required to make repurchases of the Notes being surrendered or converted at their maturity, we may not have enough available cash or be able to obtain financing to refinance the Notes on commercially reasonable terms or at all. Our level of indebtedness could adversely affect our future operations by increasing our vulnerability to adverse changes in general economic and industry conditions by limiting or prohibiting our ability to obtain additional financing for future capital expenditures, acquisitions and general corporate and other purposes. If we are unable to make cash payments upon conversion of the Notes we would be required to issue significant amounts of our Class A common stock, which would be dilutive to existing stockholders. In addition, if we do not have sufficient cash to repurchase the Notes following a fundamental change, we would be in default under the terms of the Notes, which could seriously harm our business. The terms of the Notes do not limit the amount of future indebtedness we may incur and if we incur significantly more debt, this could intensify the risks described above.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our

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conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Note hedge and warrant transactions we have entered into may affect the value of the Notes and our common stock.
Concurrently with the issuance of the Notes, we entered into note hedge transactions with certain financial institutions, which we refer to as the “option counterparties.” The note hedge transactions are expected to reduce the potential dilution upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be. We also entered into warrant transactions with the option counterparties. However, the warrant transactions could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds $381.82.
In connection with establishing their initial hedge of the note hedge and warrant transactions, the option counterparties or their respective affiliates have purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock following the pricing of the Notes. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives contracts with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so during any observation period related to a conversion of Notes or following any repurchase of Notes by us on any fundamental change repurchase date or otherwise). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes.
In addition, if any such convertible note hedge and warrant transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock and the value of the Notes.
We are subject to counterparty risk with respect to the note hedge transactions.
The option counterparties are financial institutions or affiliates of financial institutions, and we will be subject to the risk that these option counterparties may default under the note hedge transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If one or more of the option counterparties to one or more of our note hedge transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under those transactions. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price of our common stock and in the volatility of the market price of our common stock. In addition, upon a default by one of the option counterparties, we may suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurances as to the financial stability or viability of any of the option counterparties.

Item 2. Unregistered Sales of Equity Securities
Issuer Purchases of Equity Securities
No shares of our Class A or Class B common stock were repurchased during the three months ended June 30, 2015.
Sales of Unregistered Securities

In connection with an acquisition agreement entered into on March 25, 2015, the Company agreed to issue up to an aggregate of 25,425 shares of its Class A common stock to the stockholders of Refresh, Inc. (“Refresh”) as a portion of the consideration for all of the outstanding equity of Refresh. The acquisition closed on April 1, 2015. The final number of shares of the Company’s Class A common stock to be issued in connection with the acquisition is subject to adjustment based on (i) purchase price adjustment provisions, (ii) continuing service obligations to the Company of certain stockholders of Refresh, and (iii) indemnification obligations of Refresh stockholders after the closing of the acquisition.
The issuance of shares of the Company’s Class A common stock to stockholders of Refresh in accordance with the terms and subject to the conditions set forth in the acquisition agreement was made in reliance on the private offering exemption of Section 4(2) of the Securities Act and/or the private offering safe harbor provision of Rule 506 of Regulation D promulgated thereunder based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) investment representations obtained from the stockholders of Refresh, including with respect to their status as accredited investors, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities.”

Item 6. Exhibits
 
Exhibit
Number
  
Exhibit Description
31.1
  
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
31.2
  
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
32.1
  
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
 
 
 
101.INS
  
XBRL Instance Document
 
 
 
101.SCH
  
XBRL Taxonomy Schema Linkbase Document
 
 
 
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document
 
 
 
101.DEF
  
XBRL Taxonomy Definition Linkbase Document
 
 
 
101.LAB
  
XBRL Taxonomy Labels Linkbase Document
 
 
 
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document
 
 
 

 


66



Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
LINKEDIN CORPORATION
 
 
 
 
Dated:
July 30, 2015
By:
/s/    Jeffrey Weiner
 
 
 
Jeffrey Weiner
 
 
 
Chief Executive Officer and Director
(Principal Executive Officer)
 
 
 
 
Dated:
July 30, 2015
By:
/s/    Steven Sordello
 
 
 
Steven Sordello
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

67


Exhibit Index
 
Exhibit
Number
  
Exhibit Description
 
 
 
31.1
  
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
31.2
  
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
32.1
  
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
 
 
 
101.INS
  
XBRL Instance Document
 
 
 
101.SCH
  
XBRL Taxonomy Schema Linkbase Document
 
 
 
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document
 
 
 
101.DEF
  
XBRL Taxonomy Definition Linkbase Document
 
 
 
101.LAB
  
XBRL Taxonomy Labels Linkbase Document
 
 
 
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document