The stock being down 13% over the past six months vs. a 12% rise in the S&P creates a buying opportunity in LinkedIn (LNKD), says analyst Mark Mahaney, upping it to Outperform with price target lifted to $250.
Working against the stock were overly aggressive Street estimates, a heavier-than-expected 2014 investment outloo, a greater-than-expected slowdown in Talent Solutions growth, and uncertainty over Marketing Solutions format changes, says Mahaney.
"The first issue has been addressed – Street 14 EBITDA estimates have been reduced 11% since the beginning of this year. And we believe LNKD’s 14 investments – salesforce buildouts, product and market expansions, and acquisitions – are coming from a position of strength against large TAMs. Our very recent proprietary work helps address Drag Issues 3 & 4. Hence, the Upgrade..."
LinkedIn (LNKD) is ahead by 2.6% in the premarket after moving forward in China with the opening of a beta Simplified Chinese language site. The company already has 4M Chinese users on its English version, and the Chinese site will broaden reach to 140M Chinese professional workers.
Of course, operating in-country will draw more attention from Beijing's censors, but Wunderlich's Blake Harper thinks LinkedIn "has less to concede than many other western Internet companies, as its core mission and use case for professionals is in line with the government's initiatives for economic growth ... If all goes as planned, the company should see material member growth and engagement on the site throughout the year, but we would expect any impact with corporate customers to be further down the road."
Unlike Twitter, LinkedIn (LNKD -7.3%) hasn't seen any downgrades after providing disappointing guidance and site traffic data to go with a Q4 beat. 13 firms have cut their PTs, but their targets all remain at $225 or higher. Meanwhile, SunTrust has upgraded shares to Buy.
SunTrust's Robert Peck notes the midpoint of LinkedIn's 2014 revenue guidance range implies a 20% drop in revenue growth from 2013's 57% clip, a decline he considers "excessive" in light of the launch of new products such as sponsored news feed ads and Sales Navigator. LinkedIn has a long history of lowballing its revenue guidance.
Morgan Stanley thinks LinkedIn's margins could be "flattish" in 2014, but also believes improving ad sales and the rollout of LinkedIn's sales products could yield revenue upside. In spite of the traffic data, Needham remains confident LinkedIn's investments in creating a "richer experience" for users will yield higher engagement.
LinkedIn mentioned on its CC (transcript) unique visiting members rose 31% Y/Y in spite of the site traffic slump, thanks in part to mobile growth, and that member page views rose 40%.
Corporate customers under contract rose 11% Q/Q and 49% Y/Y to over 24.5K; CFO Steven Sordello admits much of the new account growth now involves smaller clients, but adds ARPUs for larger clients are growing due to product cross-selling. To keep up its momentum, LinkedIn plans to grow its salesforce by over 30% in 2014.
In addition to providing soft top-line guidance, LinkedIn (LNKD) has disclosed its site traffic fell Q/Q in Q4, according to comScore's numbers. Unique visitors dropped by 3M Q/Q to 139M (they rose 23M Y/Y), and page views fell by 1B to 10.6B (they rose by 800M Y/Y).
Though comScore's data doesn't include mobile app traffic (growing rapidly, from all indications), it's fueling concerns LinkedIn's efforts to boost user engagement aren't going as planned. With only 25% of its revenue coming from ads, LinkedIn is less directly dependent on site/app traffic than Facebook and Twitter.
The company continued to spend aggressively in Q4. Sales/marketing spend +57% Y/Y to $157.2M (35% of revenue), R&D +46% to $113.1M, G&A +66% to $64.8M.
The U.S. accounted for 61% of revenue vs. 62% in Q3. Direct (online) sales made up 39% of revenue vs. 42% in Q3.
Registered users rose by 18M Q/Q to 277M after growing by 21M in Q3.
Though LinkedIn (LNKD) once again beat estimates, the company is guiding for Q1 revenue of $455M-$460M and 2014 revenue of $2.02B-$2.05B, below consensus forecasts of $470.3M and $2.16B. Adjusted EBITDA is expected to total $106M-$108M in Q1, and to grow to $490M in 2014 from a 2013 level of $111.4M.
In tandem with its results, LinkedIn has announced it's acquiring Bright, provider of a job search engine/listing platform that leverages proprietary analytics technology to help employers find and screen candidates. The purchase price is $120M (73% stock, 27% cash).
LinkedIn says it will use Bright's "data-driven matching technology, machine-learning algorithms and domain expertise" to help build out its own "economic graph" of workers and job opportunities (previous).
LinkedIn's Talent Solutions (jobs) growth moderated a bit in Q4, rising 53% Y/Y vs. 62% in Q3. Likewise, subscription revenue growth fell to 48% vs. 61% in Q3. Ad sales, pressured in 2013 by the sponsored news feed ad transition, rose 38% vs. 36% in Q3.
Talent Solutions made up 55% of revenue, subscriptions 20%, ads 25%.
Facebook (FB) is down 2.3% AH, and LinkedIn (LNKD) is down 1.6%, after Twitter and Pandora provided disappointing Q4 reports. In addition, Twitter shareholder GSV Capital (GSVC) is down 6.7%.
Richly-valued Twitter beat Q4 estimates and provided above-consensus revenue guidance. But it also reported a 7% Q/Q drop in Timeline views and slowing monthly active user growth. Pandora beat Q4 EPS estimates, but only reported in-line revenue and issued below-consensus guidance.
Several high-flying Internet stocks are getting a lift from Facebook's big Q4 beat, which was accompanied by news the social networking giant's mobile ad sales rose ~4x Y/Y and now account for over half of its ad sales.
U.S. and Chinese Internet stocks are adding to last week's big losses, as investors continue taking profits following major 2013 gains. Chinese stocks were hit last week by an emerging markets selloff, weak PMI data, and an SEC ban (pending appeal) on audits from the Chinese units of big-4 U.S. accounting firms.
Twitter (TWTR -8.2%), the company bears are most likely to point to when arguing a new Internet stock bubble has formed, is headlining the U.S. decliners. Shares are still up 25% from their post-IPO opening trade of $45.10.
LinkedIn (LNKD +4.7%) has hired Derek Shen, previously the CEO of Chinese group-buying site Nuomi (now controlled by Baidu), to be the head of its Chinese unit (a newly-created role). Shen will be based out of Beijing.
The hiring is widely being taken as a sign LinkedIn, whose services (unlike Facebook and Twitter's) aren't blocked in China, will soon be launching a Chinese site. The company currently has an office in Hong Kong, but not on the mainland.
Several LinkedIn clones already exist in the Middle Kingdom, but none have taken off the way LinkedIn has in the U.S. and certain international markets. Government agency CNNIC estimates China had 617.6M Internet users at the end of 2013, and 500.1M mobile Internet users. Just 4M of LinkedIn's 259M registered users are currently in China.
Shares are now up 14% from the near-term bottom they set on Jan. 7, following a BofA/Merrill downgrade.
Cowen's John Blackledge is the latest analyst to issue a bearish opinion on Twitter (TWTR -4.9%), starting coverage with an Underperform and $32 PT. After opening higher, shares are adding to their recent losses, and are now down 17% on the week.
Blackledge (unsurprisingly) takes aim at Twitter's valuation, and also reports a survey of 50 ad buyers suggests Twitter's ad ROI is worse than Facebook (FB -1.7%) and LinkedIn's (LNKD +2.3%). ~60% of respondents claimed Facebook delivered the best ad ROI, ~25% said LinkedIn did so, and only ~5% picked Twitter.
RBC offered a more upbeat take last month, stating 40% of polled Twitter advertisers have seen improved ROIs over the prior six months, and that a similar number have increased their Twitter spend.
Much like Facebook in 2012/early 2013, Twitter has been busy rolling out a barrage of new ad products, as it works to provide better targeting and improve its ad revenue per 1K timeline views from a Q3 level of just $0.97 ($2.58 in the U.S., $0.36 internationally).
Cantor and Morgan Stanley have already cut shares to Sell this week, with each naming valuation among its reasons for being bearish.