Microsoft Corporation (MSFT) Earnings Call Transcript & Summary

Welcome, everyone. I'm Brett Iversen, General Manager, Investor Relations. This is the fifth in our series of quarterly videos focusing on strategic areas that are top of mind for our investors. Today's discussion will highlight LinkedIn and the opportunities we see for continued growth in the business. Ryan Roslansky, CEO of LinkedIn, is here with us today to answer your most frequently asked questions and provide some additional perspective on the growth opportunities for the business. As always, please reach out to our Investor Relations team directly with any feedback you might have after you view the video. With that, let's kick things off. Ryan, welcome. Thanks for being with us.

You bet.

Maybe to help to start with some framing, how would you help our audience think about LinkedIn fitting into Microsoft's broader mission?

Yes, I think it's a really great place to start. Successful acquisitions are often ones where you can find alignment between 2 companies' missions. And think about Microsoft, which is to empower every individual organization across the world to achieve more. A critical component to doing that is through people. And so for LinkedIn, when our mission is to create economic opportunity for every member of the global workforce, it aligns nicely towards that vision and mission of Microsoft. So essentially, we're moving in the right direction together. But for LinkedIn is from a professional network perspective for Microsoft ops for professional cloud.

Got it. Got it. I remember when we first announced the acquisition, and large acquisitions can be tricky to land sometimes, what do you think has made this one so successful?

Well, I think it has been very successful. In the 5 years since the acquisition was made, revenue is nearly tripled, growth is accelerated. And I would say that's largely due to the initial strategy that Satya and Amy had at the beginning of the acquisition, which was to leave LinkedIn completely independent, which seems unique and different, but there was a lot of genius in that move. I think they saw that LinkedIn had opportunity to grow, but just needed some help in certain areas, and Microsoft could provide that help. But LinkedIn is also a different and unique independent company, so leaving it independent with that room to grow was kind of the strategy from day one. So, we've seen a lot of growth because of that. We still see, 5 years later, LinkedIn is this thriving, independent business, which has not only helped LinkedIn grow, but obviously helped Microsoft grow overall. And you know, that model, that kind of foresight in seeing where LinkedIn could go independently, I think was the key to all of this back in the day.

Yes, the model certainly has worked, and you touched on growth, we'll get back to that in a second. But your labor markets, our audience, there's a lot of discussion interest there. What sort of trends are you and your team seeing? How are you helping users navigate through it?

Yes. Right now, globally, we are seeing one of the most unprecedented shifts in the labor market to ever occur. If you think about it through the pandemic, the entire way that everyone has worked has been upended. And right now, we're coming to a place where, on one hand you have nearly every CEO or executive team in the world trying to figure out how their company works moving forward. Are we remote? Are we hybrid? And in fact what they're doing is they're rethinking their culture and their values. On the other hand, you have every professional in the world that's worked differently over the past couple of years, not only are rethinking, where and how they work, but why they work. And it's creating what we call a great talent reshuffle, as people are trying to better align what they want to be doing with their jobs, and their roles, and their lives moving forward. So on LinkedIn, we see interesting stats that, nearly 37% year-over-year increase, the percentage of the member base who are changing their jobs. People are looking at brand new things, they're trying to figure out what to do with their life and their future profession, and they're turning more than ever to LinkedIn for that. In every minute on LinkedIn right now, more than 9,000 new connections are made, nearly 6 hires are made every minute, nearly 4,500 job applications are submitted, more than 100 hours of learning content are consumed. On the learning side together with Microsoft, over the last couple years, we've helped train more than 47 million people to build the skills they need for the jobs of the future. But through this great talent reshuffle, people are turning more and more to LinkedIn to navigate what they're trying to do with their careers.

Yes, the great reshuffle, that phrase has really resonated with me, because you have people leaving one job, but they're instantly, in most cases, going to somewhere else. You mentioned growth a minute ago, it's been phenomenal for a while. What would you highlight for our audience has really been driving that?

I mean, at the core, it's a lot of what I said, which is that as people are trying to navigate and understand, not only how and where they work, but why they work. They're turning towards their professional community. They're turning towards LinkedIn. And at the core of what we do, we build a consumer platform, a consumer social network, where members try and stay connected and stay informed against what they're trying to do professionally. We're only seeing that increase over time. Beyond that, we're a leader across multiple secular growth areas, B2B advertising, professional hiring, corporate learning, sales intelligence. And all of these are seeing unique trends right now in the market. So talent, we just talked about, it's a job seekers market. Across our talent solutions business, we continue to be the number one platform where professionals get a job in the United States. You look then at like learning and development, and the upskilling and reskilling of workforces and employee engagement has never been more critical than it is right now, so we're seeing continued growth and demand there. And the marketing solutions, our advertising side, it's our fastest growing business, over $3 billion annually. And advertisers right now across the internet are looking for a trusted place to reach their audiences. And core to LinkedIn and what we do is to create a trusted platform, so we're seeing a lot of demand from advertisers looking for networks to reach professionals, and LinkedIn is the number one choice for them, obviously. In our sales solutions business, when the pandemic happened, sales people who used to only know how to reach their leads, potential buyers, in person, had to learn how to become virtual overnight. So virtual selling has become a critical trend for us. That business, as just announced, just recently just crossed $1 billion in annual revenue. And then our premium subscription business, just allowing the broad member base on LinkedIn with greater access to features like searching, and reaching out, and job seeking, has really accelerated, as we help people drive their businesses and advance their careers moving forward.

Maybe stay with us for a minute, when you and the rest of your leadership team, how do you measure success, what are the key indicators you're watching?

Yes. I think we take a really unique view on this because we run this member ecosystem and all these businesses that are connected through it, we think about it in 3 ways, and in 3 ways that are very much prioritized. First and foremost, member value. Are we able to create and deliver member value to our over 800 million members on LinkedIn who have a reason to use LinkedIn, to create a profile, to stay connected, to stay informed? Members using LinkedIn were frequently finding value. It's the tide that lifts all boats across LinkedIn. We just talked about -- we just announced another quarter of record engagement on LinkedIn, but first and foremost, are we creating -- are we delivering member value? Then we switch over to customer value. How are we helping our customers to obtain their objectives of what they're trying to do across LinkedIn? Oftentimes, you hear companies talk about customer value in terms of revenue. We actually don't do that. We talk about it in terms of what they're trying to accomplish. So in our hiring business, are they hiring more people? We call that confirmed hires. In our learning business, are people actually learning skills? In our marketing business, are marketers actually capitalizing on the objectives that they have? So we create member value, we match that with customer value. And when that happens, we see value back to LinkedIn, which obviously we talk about in terms of revenue. We talked about sales solutions business just surpassing $1 billion for the first time. Our sales talent marketing and subscription lines have now all reached this $1 billion milestone, which is a testament to how well this idea of member value plus customer value works in terms of value back to LinkedIn.

And in terms of feedback, I would say, given all of the amazing people I've talked to at LinkedIn, there's really, really good clarity across what the company is focused on at any particular point in time, which is hard given a company that size, so, kudos. We've talked about growth in a couple different ways. I'd be remiss if I didn't touch on TAM, the Total Addressable Market, our investors and analysts are always excited about that. For LinkedIn, do we think of that as a singular concept or is it more of an aggregation of, multiple markets, given the different lines of business that you've highlighted?

Yes, I mean, well because we have that diversified set of businesses, that diversified set of revenue streams. We operate across different marketplaces. We do look at TAM across each of those businesses. So first and foremost, hiring, which is focused on recruiting, professional growth, learning and upskilling both, people inside of a company, as well as people who are trying to obtain skills for a new job. Obviously, B2B advertising, where, professionals who are trying to market to other professionals against a B2B purpose is kind of where we think about our advertising TAM to be. And obviously sales intelligence, which is only continuing to be an important market in the world. More intelligent sales people can become, the better they can be at their jobs. And then last, but not least, we have a consumer subscription business, which is basically, how do we help job seekers to better obtain what they're trying to do on LinkedIn through a subscription fee through LinkedIn? And combined, we believe that there's a TAM opportunity of roughly $100 billion across these markets.

That's a number that we can get excited about for sure. So related to that TAM, obviously there's always competition. How do you think about the competitive landscape, and maybe more specifically, where we're differentiated?

Yes, I mean, one of the first things I think about is what we talked about before, which is, I think that one of our best competitive advantages is just our approach to, number one, create member value; then number two, create customer value, and focus on those 2 things to create value back to the company. At the end of the day, our professional context is critical to everything that we do. It's how we differentiate ourselves from other networks that are out there. And our vision which is to create economic opportunity for every member of the global workforce, which is our true north, also differentiates us from other networks that may be chasing entertainment or engagement, et cetera. So core is that, professional context. Then when we're building products that provide customer value, our ability to leverage that network across them is what differentiates those businesses. Think about the job seeking space, where, historically you may go to a job board and search for a job, and see a list of jobs. And that's a great way to find a job. In our case, we can help you understand, who do you know at a certain company? Who can help refer you into a job? That's by layering the network on top of some of these activities. So number one, professional context, grow the network. Number two, use the network across each of these business lines, is what differentiates us. Last but not least, what I would say, especially in 2022, I believe that one of our most important competitive advantages is the fact that, it's something that I call, we are able to do well as a company in terms of our business results, but also do good in the world. And for most companies, doing good and doing well are separate things. But when you can naturally align both of those in your business, I think there's a real competitive advantage. Most companies when -- obviously are gonna focus on doing well, but when it comes to doing good for the world, they create a .org website or it becomes the last slide in a PowerPoint presentation. But for us, these things are so naturally aligned. When we build great products, people get jobs. We build great products, people learn skills. That's also how we drive value back to the company. So I believe that we're really in a unique position, this intersection of doing good and doing well. It's a very important competitive advantage for us.

I love that. That's great. We talked about growth in a couple different dimensions, how are you continuing to find and reach new audiences?

Yes. I mean, new audiences are really important to us. Nearly 3 members sign up for LinkedIn every second. The majority of users are now from outside of the United States, so international growth's important to us. But we're also seeing a pretty big spike in 2 segments, frontline workers and Gen Z. So on the frontline side, more than 125 million frontline members are on LinkedIn, it's roughly 35% of all signups right now. And engagement is growing at 2X the rate of knowledge workers. So we're starting to see network effects taking place in the frontline segment. And secondly is Gen Z, and Gen Z is fascinating to us because when I talk about the percentage of the member base that has been transitioning to new jobs through the pandemic, that average is up 37% year-over-year, as I said earlier on. When you look at Gen Z, it's up 126% year-over-year in the last 3 months alone compared to the similar period 2 years ago. This is a group who, by nature, are just in a place where they believe that it's okay to be moving around more frequently, to constantly be tapping your network, constantly be learning new skills, staying informed and moving around. So this segment is both, important to us as a platform because it's the segment that's coming up to use LinkedIn right now, but it's also a much more active and engaged segment than we've ever seen, so there's a lot of excitement in that segment as well.

So as we look ahead, what are you most excited about on the future roadmap?

Yes, I mean, I think it's really important and exciting when you can marry the trends that you're seeing in the world with where the product roadmap is going, and I think right now we see 3 really exciting trends in roadmaps, which is that we're making it related to it. So first and foremost, we've talked a lot about our talent marketplace, and again, nearly 6 hires are made on LinkedIn every minute. But the trend that we're seeing in those hires, in the jobs posted on LinkedIn. Roughly 1 in 6 jobs in the U.S. right now are remote. That number was 1 in 67 jobs in March of 2020. And about 1/3 of U.S. companies now have open jobs that are remote on LinkedIn. So the trend that we're really leaning into with our product roadmap is ensuring that our products can help people find roles, be them hybrid, remote, ensure that our job search has the right filters to make it easier for members to discover roles at companies that align with how they wanna work. Our company pages product now allows companies to more -- to better share more about their culture, their new workplace policies, their vaccine requirements, et cetera, everything that a job seeker wants to know about. And making it much easier now through our Open to Work feature that allows a job seeker, either actively or passively, to raise their hand and say, "Hey, I'm looking for a role with certain characteristics or a certain culture" to help make that marketplace match. That's one. Second trend we're seeing is just a huge rise right now in entrepreneurship. And we've had, more of a beta feature that we've been testing for a while on LinkedIn called Service Marketplace. It allows freelancers to decorate their profile in a certain way to show the services that they offer, and help them discover new clients. And we've helped nearly 3 million freelancers and small businesses discover new clients. Right now, we just help them make the match, and then they can transact offline. But we're really excited to continue to invest to make that a more vibrant marketplace across LinkedIn. Then last because of COVID, or because of a fourth industrial revolution, or because of digital transformation, new roles are being created and displaced right now at a record pace. And the world will we live in demands more alternative, flexible, always accessible paths to well-paying jobs, and we believe that's gonna come through a skills based approach to opportunity. By skills based, I mean, historically you're trying to hire someone, you say, "Where did they go to school?" or "Who do we know in common?" as your way to filter them out, not necessarily what exactly do they know how to do, and how good are they, at doing that skill. So we're really kind of flipping the market to focus on skills as the approach to find talent, and companies are increasingly utilizing this on LinkedIn. About 40% of hirers are explicitly using skills to search for candidates right now on LinkedIn. And in 2021, we helped 400,000 companies make a skills-based hire. Not only does this focus on skills lead to a much more efficient talent marketplace, but it also creates a much more equitable one as well.

Those are all super interesting to me, and I appreciate that you shared. When you then move, if you think about broader Microsoft, are there any potential integration opportunities that you're excited about or thinking about that make sense?

Absolutely. I mean, again, back to the, first principles of the acquisition, we will look for those opportunities that helps to grow LinkedIn. And we've actually seen and talked about, historically, some really great examples, LinkedIn learning courses within Microsoft Viva, LinkedIn Sales Navigator Leads within Dynamics 365, LinkedIn Profiles within Office. All these great ways that help extend LinkedIn and grow LinkedIn, but also providing value back to Microsoft's products as well. There's also been a lot of technical integrations that are not really visible, but have really allowed LinkedIn to scale quickly on things like real time video, online events, et cetera. So our ability to leverage a lot of that technology, a lot of those products, makes it much easier to help LinkedIn scale faster moving forward. But we're just gonna keep the same approach, it's worked so far. We'll keep finding those areas of integrations that make sense. But it's not integration for integration's sake, it's integration to help grow LinkedIn.

Right. We've covered a lot of ground in a short period of time, so I appreciate that. Any closing thoughts to wrap us in terms of your messages you'd want investors and analysts to really take away?

Yes, I mean, I think the opportunity has never been this exciting for LinkedIn, and I am extremely excited to be leading LinkedIn through this next chapter. But you kind of take a macro view on all of this, and look, the world right now, this great talent reshuffle, actually places LinkedIn in a singular position to shape the new world of work given the ecosystem that we've built, the talent marketplace that we run, the ability to help people learn, to grow, and get hired, not only over the course of this one moment, but over the course and the entirety of their career. So we could not be more excited about this time in history, and the role that we're gonna play in it to create a better future moving forward.

Totally agree. That's a great place to finish, so thank you. Yes, thanks, Ryan, for your time today, and the insight. And we thank everyone for watching. We're excited about the significant opportunities that lie ahead for LinkedIn, and we appreciated having some time to talk with you about it today, so thank you.