LinkedIn: A Buy At These Depressed Prices

| About: LinkedIn (LNKD)

Summary

While growth is decelerating, we do not believe it is decelerating enough to warrant a 40%+ sell-off in shares.

LNKD is currently trading at 15x EBITDA on real EBITDA growth of ~30%.

We believe in the secular story that LNKD will serve as the primary career management center in most countries within the next 5-10 years.

We think there exists a chasm between casual social media and professional social media, and do not believe app consolidation will bridge this chasm.

All things considered, we believe LNKD is a buy at these depressed levels.

Shares of LinkedIn (NYSE:LNKD) tumbled more than 40% in trading Friday following drastically reduced guidance for 2016. At these levels, we believe LNKD is a buy. We expect LNKD share price to appreciate over the next 12 months driven by multiple expansion and consistent earnings beats.

We are mostly attracted by the valuation of the stock post-40% collapse. At a $14 billion market cap, the company's enterprise value is around $12 billion after taking out $3.12 billion in cash and adding in $1.13 billion in debt. That is a 15.4x multiple on LTM adjusted EBITDA of $780 million. The 15x EBITDA multiple is on guided EBITDA growth of 23%. The guided adjusted EBITDA number for 2016 of $962.5 million is FX headwind afflicted and likely additionally low based on management's conservatism. Management's revenue guidance includes a 2% FX headwind and, if we throw in another 5% for conservatism, we believe real EBITDA growth this year will be in the 30% range. In essence, we believe we are buying LNKD here at a 15x multiple on real EBITDA growth of ~30%.

Additionally, we believe the stock has healthy ammunition for share price appreciation through earnings estimates beats over the next 4 quarters. We believe management has set the bar exceptionally low for this year, and with estimates coming down, we do think the company can consistently beat those estimates over the next 4 quarters. This coupled with an attractive valuation should give the stock sufficient firepower for share price appreciation over the next 12 months.

On a more qualitative standpoint, we believe in the secular story that LNKD will serve as the primary career management center in most countries within the next 5-10 years. Although we are a major proponent of app consolidation and are bullish on Facebook's (NASDAQ:FB) pioneering moves to overlap multiple app functionality, we do believe there exist several reasons why people will continue to prefer to keep their personal and professional profiles on separate platforms. We think there exists a chasm between casual social media and professional social media, and do not believe app consolidation will bridge this chasm.

In sum, we believe the LNKD platform serves a meaningful purpose and has longevity. While growth is decelerating, we do not believe it is decelerating enough to warrant a 40%+ sell-off in shares. We have comfort buying here at a 15x EBITDA multiple on real EBITDA growth of ~30%.

Disclosure: I am/we are long LNKD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.