Microsoft Corporation (MSFT) Earnings Call Transcript & Summary

Hey, welcome to our next session. I'm really happy. I feel like now an Internet guy because like now we're talking about LinkedIn and kind of properly good kind of assets that are kind of dealing in the social world. And -- so if some of my questions feel like this is a software guy asking me silly questions I apologize in advance.

I just want to answer it.

Yes. Ryan, like since this is the first time, now it's been a while since we are out on the conference circuit and a lot of things have changed. You became the CEO during the pandemic, like maybe introduce yourself a little bit first and then kind of we go deeper into questions.

Yes. Thanks again for having me. My name is Ryan Roslansky, I'm the CEO of LinkedIn. I've been the CEO for the last -- since February 2000, which was a great time to -- 2020. It was a great time to become a CEO of any company, obviously. I've been at LinkedIn before that for about 14 total years now. Worked across the products, org, in literally every single part of LinkedIn's business. We run a social network in the core, and we have 5 distinct business lines across -- around that social network. And I've had the pleasure of working on or starting every single one of them. So it's an honor to be here today with you.

All right. Okay. Perfect, everyone. So if you think about the last few years were like very fascinating in a kind of positive and negative way in terms of how the world has changed and how work has changed as well. And kind of from a LinkedIn perspective, like what stood out for you in terms of the changes that are kind of happening -- like happened? And well, let's start with that as a very open question.

Yes. I mean one of the really unique things about LinkedIn is at the core, I mean, we're kind of a massive social graph. And that graph has a variety of components, nearly 900 million professionals, roughly 50 million companies that have an active presence on the platform. At any given time, those companies are posting anywhere between 14 million to 16 million job openings. There's north of 100,000 schools that have an active presence on LinkedIn. We're the only Western network that operates in China. So we have a real global view on what's happening. And the connections between all those entities we just talked about, the graph updates roughly 5 million times per minute in terms of the connections between those entities and what's going on. So it's a really unique view -- real-time view into what's happening across the global labor market. I can tell you which industry is going to be hot 3 months from now, what company is about to go out of business, where skill gaps truly exist across the world. So it's just a really unique view kind of into a real-time labor market. We actually work now with a lot of the governments across the world to help provide them with more, what I'll call, real-time and accurate data about what's happening in their labor markets because we just have that view. So I mean, there's been a lot of tremendous insights over the past couple of years, one that we paid a lot of attention to, which I think everyone felt and talked about was, there's a stat that I look at pretty frequently, which is, we call position changes. It's basically someone changes their profile from going in a position at one company to a position in another company. It's that simple. And historically, the year-over-year, like deviance in that metric is literally like negative 1% to like plus 1%. It stays pretty constant in terms of the percentage of the member base that's changing jobs. When COVID hit, that number dropped. It dropped to like negative 20% which makes sense, people were sheltering in place to try and figure out what they want to do with their life or ride out the uncertainty. And then that number skyrocketed. And this is what people called The Great Reshuffle or The Great Resignation, but my goodness, like the number of people that were changing jobs on LinkedIn back 1 year, 1.5 years ago was, it was unreal to watch. I mean, north of 100% year-over-2-year on the movement. And it was just -- it was crazy to watch kind of the movement in general. But what was really interesting is if you break down the kind of that reshuffle data by generation, Baby Boomers, they really weren't moving at all, to be honest. And then as you kind of keep going up the kind of generational spectrum, people are moving more frequently. And then you get to like Gen X. And I mean this is a group that's moving like north of 300%, like through the great reshuffling. In fact, it's still -- right now, it's all kind of elevated back down into that like negative 1%, 1% range again, it feels back to normal, but Gen Z is still moving at north of 30%. And I think this is a generation that just feels like you're supposed to move jobs frequently or that's how the world works. And it's a -- I think looking out, it's really a generation that's going to be heavily inspired and motivated and companies are going to have to figure that out. So I think that's one thing we paid attention to. On the job side, something fascinating right now that I look a lot at is pre-pandemic, about 1% of all jobs posted on LinkedIn were remote. As of today, that number is about 14%. So we've seen a huge jump in the number of jobs that are remote, but that's not the fascinating part. What's fascinating is north of 50% of all job applications on a daily basis on LinkedIn go to that 14% of remote jobs. So there's huge demand still, at least on the labor side for remote work. And then actually, something we were just looking at this morning walking over is, we're kind of tracking where people are -- people who are moving -- physically moving locations for jobs. And I don't know. I mean, I don't know if you would have called it -- I probably would have called it a few years ago. But right now, the 3 biggest markets people are moving to -- physically moving to New York, San Francisco and Seattle. There's like this move back to the cities. And this -- I mean, there's real movement right now. So and those are the couple of things that I'm paying attention to.

Yes, yes. That's interesting. And do you think that Gen Z or like, let's call it, the younger generation, do you think that's a permanent thing? Or is it like -- because like the discussion we have as well is like because they were younger, there's a whole new world of feeling differently about work, et cetera. Do you think they will eventually get old and settle down like the rest of us? Or do you think this is a permanent change to ...

I haven't seen anything in the data that would suggest slowing down. In fact, it's starting to -- the frequency with which they're changing jobs is actually increasing and it's starting to really deviate even from Millennials. So I think it's -- who knows. I wish I had a crystal ball on that, but at least it's kind of the new way of work. And it's not just moving jobs, but it's kind of having the side gig, maintain actually a couple of side gigs along with your core jobs. So we'll see.

Yes. And then is that something that is heavily U.S.? Like is it -- is that global?

It's global. Yes, it's a great question. It's a global phenomenon. I mean it indexes higher in the U.S., but it's happening globally.

Yes, that's amazing. Okay. Germans don't stay in their job anymore. Okay. What's going on. The -- like another thing that's interesting, it's kind of -- if you think about skills and degrees and pedigrees, where people are coming in, like what do you see there in terms of the future of talent? Do you see any trends playing out there? And like -- and also like how does LinkedIn Learning play in there and to help that and bridge to get there for some of them?

Yes. I mean, I think be it due to COVID or digital transformation or I mean, a fourth industrial revolution, jobs are being created and displaced right now at a record rate. And historically, what we -- I mean, all of us in this room and the world has used to assess talent are things like, where did this person go to school? Or what was their previous company? Or do they know someone that I know. And I think that's fine when the market is moving slower, but at the pace it's moving now, that's actually the world needs more flexible and alternative and always-on mechanisms to assess talent. And my perspective is that's going to come through kind of a skills-based approach. It's -- those are the things that are actually really valuable, but it's most importantly, like what does this person know how to do or what can he be trained on what to do kind of skills being the center currency. If you think about it, what we're doing across LinkedIn, I mean, every minute, we're just basically trying to -- we're trying to match like this person over here with this job over here, like do these 2 things matchup, because ultimately, how we drive value back to LinkedIn is if someone hires someone else. And when you look at skills, it's kind of the centerpiece of that matching algorithm, you're able to find much better, wider talent pool. It's a much more efficient and a much more equitable talent market. So we've been pushing a lot on this. And the technology is there. I think it's a mindset shift and a lot of folks have to go through. But here's are really -- here's like one of the best recent examples to showcase how this can be done better. So through the pandemic, pandemic starts and on LinkedIn, you see all these food service workers, like become unemployed, which makes sense. People aren't going to restaurants, like they don't have a job. On the flip side, the highest most in-demand job being posted on LinkedIn early pandemic was digital customer service agent, which makes sense because everything is moving online, you need people to help service all this. And you look at the group of the food service workers, and on average, they have 70% of the skills that you need for these entry-level digital customer service jobs. Literally 70%, like pretty much almost there. But the folks doing the hiring aren't looking at that talent pool. The folks in that talent pool have no idea that there's real opportunity here. So these 2 things go in an inefficient way, not being matched. And again, we drive value by matching these 2 things together. So I mean we see this happening all over the world right now. But I think that the more that we can start to focus on skills being the currency, it's going to help to make that a more efficient labor market, which is great for our business, but also great for the world as well.

Yes. Okay. Perfect. And then the -- for a lot of us more in the software world, we kind of -- we know LinkedIn as a great platform to kind of connect people -- business people with each other. Can you talk a little bit about -- you talked about your 5 pillars of work there. How do we evolve from that, what are you using that kind of base information for kind of to work with people and give them special offerings?

Yes. I mean we're called a job site, we're called a social network. Fundamentally, the vision for what I'm trying to create is that we're a platform that exists to create economic opportunity. And right now, really focused on 3 marketplaces. So first and foremost, the exchange of knowledge between professionals, either in paid form through LinkedIn Learning or just through kind of our core sharing and feed products. We -- about a year ago, released a newsletter product that allows professionals or publishers or companies to create a newsletter. You've heard a lot of the companies that do this as well. A year later, we have 150 million subscribers to these newsletters. It's a really valuable way to disseminate and share professional knowledge and information. And we're just keeping kind of building features like this because at the core, we believe that we can help -- it's good for our business and it's valuable for the world if we can help kind of the free-flowing exchange of knowledge between professionals. That's kind of the core thing that sits at the center of LinkedIn. And there's 2 more marketplaces that run through and on top of that versus the TalentMarketplace, just constantly connecting people with jobs either through passive recruiting or through active job-seeking. Roughly 10 people per minute will start a job, literally start a job that was found through LinkedIn. And we're just moving much more aggressively internationally into kind of the first line and frontline segments as well. So we're just trying to expand that marketplace to again help connect anyone in the world looking for opportunity, we're then looking to hire them, be it full-time, freelance, [indiscernible] et cetera. And then on top of that, we call -- we have what we call the products and services marketplace where we're trying to ultimately connect potential buyers or active buyers with sellers or marketers, obviously, in a B2B context. And probably the largest TAM actually for us is in that marketplace. We do it through a product called Sales Navigator. Then are obviously our advertising products, which have really kind of shown a lot of strength over the last couple of years. So that's the framing through which we look at. But ultimately, what we're trying to do across the board is to basically connect to people like someone sharing knowledge, someone seeking knowledge, someone looking to hire, someone looking for a job, someone looking to buy, with someone looking to seller market, too. And like that framing, I think, is what's been really valuable to help us grow over the last couple of years.

And then -- because we are the financial guys here like the -- I'm just trying to kind of -- how does that LinkedIn -- if you think about that evolution of the platform and the opportunity that kind of the platform then provides to do more stuff? How do you think about like, "Oh, I want to do more on Sales Navigator because I'm kind of making more money there? Or like how do you think about growing the business? And where do you think you then will kind of end up?

Well, I mean the good thing about it, it is -- it's a very diversified business. So I mean, obviously, we are inside of Microsoft and very grateful to be kind of inside of the Microsoft umbrella. But if you look at the past kind of the trailing 4 quarters that Amy Hood, the CFO of Microsoft has talked about LinkedIn, we're doing north of $14 billion in revenue, growing at 28%, and it's because of this diversified set of businesses. We -- all of it really kind of goes back to how do we effectively be connecting people against these value propositions that I just talked about. And LinkedIn has become much more mainstream as a knowledge marketplace. We've seen just engagement soar over the past couple of years. And that engagement with the valuable profile data that exists on LinkedIn is kind of the core thing that helps to power all of those businesses.

Yes. Okay. And then I want to switch gears a little bit, like if you think the consumer-driven Internet giants, they have a different world. They're very more heavily dependent on advertising spending and stuff like that. You're more in the business world, what are you seeing on that -- in that aspect?

Yes. I mean when I joined LinkedIn 14 years ago, I had the pleasure of starting our advertising business. And at the time, we were kind of a job site, and it was like why would anyone use LinkedIn to advertise. But what's so valuable about LinkedIn for is that we're focused on B2B advertisers, like that's kind of our sweet spot. Literally, if you're looking to sell a high-end B2B product, and you know the buying group is a CFO and someone in finance and like someone in HR, we can literally like put ads in front of those specific people on LinkedIn because the first-party data is so strong. People keep their LinkedIn profile up-to-date because it's their professional profile of records, their resume online. So our ability to target ads against that first-party data on LinkedIn is really strong. I think the context is really helpful for us as well. People want to have their ads around professional content, especially in the B2B space. So I think that helps us a lot there in general. And the more that we get people using LinkedIn, the more we get them using our feed and sharing knowledge just creates great inventory for us. So pretty bullish in long term in general for our advertising business. And again, the connection to Sales Navigator because of users -- just a lot of these ads that is generating leads are going to salespeople to help them understand how to better connect and sell to those people. So it's just a really valuable B2B market there. I think in general, the drivers of an advertising business, you obviously have -- you need engagement on one side and the new advertisers on the other side. And we're seeing both of those still relatively strong. I mean, on the engagement side, it is really strong. And we're seeing advertisers still come to LinkedIn. I just think like the rest of the world, we're seeing their budgets pulled back a little bit, so willing to be spending less on kind of a per click or per view basis right now. So still bullish about that business. I think we're going through a cycle right now. I think the B2B context and differentiation helps us a little bit, but we're not immune to what's happening broadly.

I mean, from your experience from previous cycles or when you saw what's a pandemic, '08, '09, et cetera. Well, '08, '09 was maybe too early. Like the -- are you kind of in a way with that then cyclical, but like less in terms of magnitude cyclical compared to like the consumer guys? So how would you kind of characterize it?

It's interesting because what happens on LinkedIn to just your earlier point about the diverse business lines. What happens to LinkedIn in a cycle? We see just a huge wave of engagement through job seeking. A lot of people are looking for jobs. We see a lot of engagement in our -- kind of our paid learning products because people who are looking for jobs or kind of back to my skill point are trying to upskill themselves to the jobs that exist and try and pick up and learn new skills. And so again, kind of the dynamics of an ad market are [indiscernible] and then advertiser demand and both of these things can kind of go in different ways. So right now, we see the engagement side just really kind of pick up and the advertising side is still there. It's just a little bit muted to where it was probably a year ago, which I think is probably right.

Okay. Then I wanted to switch gear a little bit, you have now, what, 875 million members. If you think about the growth opportunity there, I mean it's already like a very, very big number. How should we think about that number going forward? And where do you see opportunities? I'm thinking maybe international more, et cetera, like but I'll let that you speak to it.

There's 875 million members on LinkedIn. We're growing right now. There are 3 members that join LinkedIn every second. 35% of those members are kind of front line right now, which is different. 2/3 of those members are outside of the U.S. A lot of strength right now in Asia Pacific. A ton of strength right now in India. We're nearing 100 million members right now in India. These members are over-indexing on everything that you need for economy to move forward. So networking and job-seeking and learning something really unique and special right now, I feel like that's happening in India. And LinkedIn grows. We don't spend money to acquire any users. It grows, it's a network. So people join LinkedIn. They upload their address book and whoever is in their address book, it's invited to join LinkedIn along with them. So the network kind of grows in these organic ways along with kind of where the pockets of growth are happening right now. So my -- the vision of the company is to help everyone in the world an economic opportunity. So I think that ultimately, that's where we aspire to be. But I think we're seeing accelerated member growth right now and it's especially coming internationally, India, Southeast Asia, Brazil and more than we have ever seen before kind of in the frontline sectors.

Yes. That was actually my next question. On the front line, doesn't strike me from the outset as like a LinkedIn, like initially at least initially, things like because it's a world like the office workers kind of networking, et cetera. Like how does that fit in there? And the question is actually what was my -- why did the frontline workers now just kind of -- why are they only discovering it now?

I think they're discovering it now because of what I just explained. Which is, again, people discover LinkedIn because someone in their address book or that they know connects or ask them to join LinkedIn. So you get these pockets and then that growth kind of happens, which is one of the beautiful things about kind of these social growth products, is how they grow on their own. But we never really -- we never really had on the recruiting side, a lot of companies who were coming and posting frontline jobs on LinkedIn. So there was no reason for people to join in the first place. Now that's starting to change, companies are posting all their jobs on LinkedIn. A company like Amazon will just literally post every single one of their jobs, no matter where it is in the company on LinkedIn. When that happens, it brings those people on LinkedIn because maybe they'll find the job through SEO, et cetera. They join LinkedIn, they invite their people that they know and their connection to join LinkedIn and then that just kind of starts a cycle there. So that's where a lot of that growth right now is coming from. Great thing for us is that when you start to see a lot of these folks join LinkedIn, it allows our sales team to go out and find new customers saying, hey, these folks are on LinkedIn, the folks you're trying to target and for us to kind of open up that level of business, so as we kind of balance the marketplace.

Yes. Okay. Next question I wanted to ask, so you mentioned earlier the Microsoft relationship and how much you're enjoying it? Like what's the -- how do we have to think about that? What Microsoft brings to the table? You were in LinkedIn before, you were part of Microsoft, talk us through like how they're helping or what's different?

I mean I think we're nearly 6 years past the date of this acquisition. We were doing roughly, I think, $2 billion something in revenue at the time of the acquisition. We just crossed $14 billion. The business has nearly quadrupled. The member base has doubled. Engagement 2 or 3x what it was. I don't know. I think looking back, this will be thought of as one of the much more successful acquisitions in technology a decade in. I just think Satya Nadella had this super intelligent vision and understanding of how if you can let a company think long term, if you can let a company have access to next levels of technology, you can unleash a ton of value and that's exactly what's happened. LinkedIn is completely stand-alone, completely stand-alone inside of Microsoft still. I mean 6 years in. And look, when you see the success that we're having, it makes sense. If we need access to technology, I mean a lot of the AI stuff that you're going to see coming up, my goodness, if we were a stand-alone company, we wouldn't have access to the same stuff we do through Microsoft. Access to distribution partnerships is unique, access to some go-to-market stuff when we think it makes sense. But most importantly, when you're not a stand-alone smaller public company trying to make sure that every quarter, you're thinking about some short-term things to eke out something that you need for -- to meet that quarter, and you can think longer term, it's amazing. And that's exactly what's happened with LinkedIn and Microsoft. So I love it. I get to sit in a weekly staff meeting with people like Satya Nadella and Amy Hood and Brad Smith, and I mean, my goodness, like learn from the greatest leaders in technology. So it helps me, then I can take that back and help grow LinkedIn. So I think it's a just -- I think Satya has written a book on how to do a successful acquisition like this, and it's really exciting to.

And if you look at other deals in tech, usually, what you do see is like the mama ship takes something over, it doesn't really understand it. And that was the fear now like a software Microsoft taking over, like an more Internet-focused company, the founder leaves within a year after the contract, goes away, but you only now took over and you've been there for 14 years, what -- is there like and usually then there's the cost cutting coming in its way but it does look like this is all very different. Like is there...

And look, every acquisition is different in terms of what you're trying to accomplish. I think the thesis that Satya probably had was like, hey, LinkedIn if put in the proper environment can accelerate growth. And LinkedIn with access to the right technology, access to the right distribution partnerships can accelerate growth. But LinkedIn, it's not like something is broken. It's not even like there's this obvious technology overlap. But if Microsoft owns this asset, we can absolutely accelerate the growth. And that's the thesis, there's different thesis in some acquisitions, but I think it was -- I mean, it's played out to be spot on. I mean we decided 2.5 years ago to start building much more. We saw through the pandemic, obviously, people can't get together for events like this. So events are moving online. And like my goodness, like LinkedIn has got to be the place people have impression events. And that real-time like video technology, if we were some company trying to figure that out, it would have taken us years to figure out. But when it's like here's an API to the Teams' framework, so we can launch an event, real-time events product in a month. I mean, it's unbelievable. It just gives us such an advantage to be able to grow LinkedIn. So and to your point, I don't think every acquisition looks like that. I think other acquisitions have different thesis, but I think this one to kind of be stand-alone and let LinkedIn grow has paid off really well.

Yes. Okay. And then I only have time for 1 more question, Ryan. But I can't let you go without asking the more -- the question that probably everyone in the room was kind of thinking since you have the graph, like what are you seeing at the moment in terms of how our world is changing. Do you see any kind of early signs that this is kind of worse than what we think or like what's the graph telling you at the moment?

The only thing that it's telling me right now is that there's not 1 story happening. And I'm not smart enough, as all of you understand the nuances in that. But I mean, big tech is hiring less, health care, I mean, they can't hire enough. I mean they'll do whatever is possible which is why some of the skill sets makes sense because you can pull people out of other industries that have the right skills and then into new industries. Even inside of certain companies, you'll see like half the company hiring way less, half the company hiring way more. So I just think that it's not 1 story right now. It's literally thousands of stories that are different based on geography and industry and company size. And that's at least unique to me in the 14 years I've been looking at this data. So sorry it doesn't give you some greater insight, but I'm trying to figure out as well.

Yes. I tried. All right, Ryan, thanks for joining us. That was really, really helpful. Thank you and thanks for joining us. Thank you.

Great. Thanks everyone. Thank you.