LinkedIn Corp. (NYSE:LNKD) is set to report FQ1 2014 earnings after the market closes on Thursday, May 1st. LinkedIn is the largest social network designed specifically for professionals and networking. Lately social media stocks have been under the microscope and the market has taken a hatchet to a few of them including Twitter (NYSE:TWTR) on Tuesday after earnings came in better than expected but monthly active user (MAU) growth was sluggish. Facebook (NASDAQ:FB) also recently posted a great quarter, but their stock has still fallen 7% since the report. LinkedIn's shares have been on the decline since the end of last year and this quarter Wall Street is expecting year over year revenue growth to slow to 44% from 72% last year. Earnings are also expected to fall from 45c per share in FQ1 of last year to 35c per share this quarter. Here's what investors are expecting from LinkedIn on Thursday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for LinkedIn to report 35c EPS and $466.95M revenue, while the current Estimize.com consensus from 72 Buy Side and Independent contributing analysts is 39c EPS and $468.57M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting LinkedIn to beat the Wall Street consensus on EPS by a considerable margin while coming in a couple of million dollars ahead on sales.
Over the past 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting LinkedIn's EPS 5 times and has been more accurate in projecting revenue every time. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a typical differential between the two groups' expectations on LinkedIn's earnings.
The distribution of estimates published by analysts on the Estimize.com platform range from 33c to 50c EPS and from $450.00M to $500.00M in revenues. This quarter we're seeing a moderate to wide range of estimates on LinkedIn's earnings.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of EPS estimates signals less agreement in the market, which could mean greater volatility post earnings.
Throughout the quarter, Wall Street lowered its EPS consensus for LinkedIn from 48c to 35c, while the Estimize consensus fell from 51c to 39c. Meanwhile, the Wall Street revenue consensus shot up at the end of the quarter from a low of $466.03M to $466.95M, while the Estimize community brought its consensus up going into the report from $467.96M to $468.57M. Timeliness is correlated with accuracy and upward analyst revisions going into an earnings report are often a bullish indicator.
The analyst with the highest estimate confidence rating this quarter is TechStockRadar, who projects 37c EPS and $469.50M in revenue. TechStockRadar is an independent financial research professional at TechStockProspector.com and is ranked 14th overall among over 4,350 contributing analysts. Over the past 2 years, TechStockRadar has been more accurate than Wall Street in forecasting EPS and revenue an impressive 67% and 64% of the time respectively throughout 476 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, TechStockRadar is expecting LinkedIn to beat estimates on revenue but report between Wall Street and the Estimize community on EPS.
Social media and social networking stocks have been under immense pressure lately and LinkedIn is no exception. Social media stocks tend to get valued based on the expectations of future growth and revenue potential, so decelerating revenue growth for LinkedIn could be a serious problem. On the other hand the estimates from Wall Street have been notoriously inaccurate and have been especially too pessimistic in forecasting LinkedIn's EPS.