EPS for Q1 was $0.45 and actually beat consensus by $0.14, while revenue came in at $325 million, which also beat the street by about $7 million. However guidance from the company called for Q2 revenue to be around $342-$347 million, below the $359 million the street had factored in.
While many say LinkedIn's correction has to do with management's revenue forecast miss, I say that it could have been for any number of reasons or no reason at all. In fact, when a stock is as expensive as LinkedIn is, it really doesn't need a reason to correct. Let me give you an idea of how expensive this stock is.
1y target price
It makes no difference what the guidance revenue miss was. There is no fundamental explanation -- that I am aware of -- that can justify the bubble multiples this stock is trading for. While the company is experiencing very rapid growth, the question at the end of the day is what are investors willing to pay for that growth? And judging from the run-up in LinkedIn's stock, investors have been paying far too much. In fact the stock passed the $200 mark when analysts are looking at a 1 year price target of $177.
But the ending is always the same and we have seen it many times ...
Microsoft (MSFT) also had a big run-up many years ago in the late 1990's. Microsoft, like LinkedIn today, was also trading at an astronomical multiple (about 80 times earnings in the year 2000). Then all of a sudden the music stopped. The stock initially plunged along with everything else during the time, but never bounced back (contrary to many other stocks that did). Investors all of a sudden realized that they were paying too high a multiple for the promised growth.
See, Microsoft's stock was so far ahead of fundamentals, and even though earnings have improved every year since then and the company today pays a dividend and has more cash than ever before, the stock still has not reach its all times highs of more than a decade ago.
Another more recent example is Baidu (BIDU). Investors bid up the stock to $160 thinking they had the next growth super-stock in their portfolios. But when the company started missing expectations - - by a penny here and there - - the stock has been falling ever since. Like Microsoft, Baidu's fundamentals are getting better, but they still don't justify the valuation of the company. At some point we will see the correct balance and the stock will stop falling, but I think not just yet.
Getting back to LinkedIn, it is my opinion that this stock -- as well as many others that I have featured in the past like Workday (WDAY) and Cornerstone (CSOD) -- will at some point in time correct to the downside by a lot, so that the fundamentals can catch up to valuations.
In LinkedIn's case, I don't know if the current sell-off is the start of such a correction, but I might be. And if not today, eventually from some other -- probably even higher -- vantage point in the future.
LinkedIn is correcting, but I don't think it has much to do with a projected revenue miss, but with the fact that the stock is simply too expensive. In my book the projected revenue miss is just an excuse, and not the real reason.