Earnings Preview: LinkedIn Q3 2013

| About: Microsoft Corporation (MSFT)

By Brendan Gilmartin

LinkedIn (LNKD) is set to report 3Q 2013 earnings after the close of trading on Tuesday, October 29. Results are typically released at 4:15 pm EST, followed by a conference call at 5:00 pm EST. LinkedIn is the premier social network for professionals around the globe.

Outliers & Strategy

Non-GAAP EPS: The consensus estimate is for $0.32, bracketed by a range of $0.19 to $0.43. Results have beat estimates every quarter since the IPO.

Revenues are seen coming in at $385.41 mln, with some forecasts just above $400.0 mln, well above the company issued revenues guidance of $367 mln to $373 mln.

Revenues Guidance:

  • 4Q 2013: Analysts currently expect 4Q 2013 revenues of $438.08 mln.
  • FY 2013: The consensus estimate for LinkedIn's FY2013 revenue is $1.51 bln. Last quarter, the company indicated revenue guidance was being revised upwards to range between $1.455 billion and $1.475 billion.

Registered User Base: The Registered User Base for 3Q 2013 is projected to increase from 238.1 mln at the end of 2Q 2013 to 245.5 mln, with some estimates running as high as 258.0 mln, according to Zack's Investment Research.

Implied Volatility: A day after earnings are released, LinkedIn, on average, has an absolute move of 10.7%, while the options market is pricing in about an 11% move. It is also worth noting that LinkedIn has a high Forward P/E (108.9x) and a relatively small float of about 100 mln shares, which is indicative of a volatile high-flyer. Short interest is approximately 3.55%.

Recent News

  • 10/28: According to a report on Benzinga.com, Wedbush reiterated a Neutral rating and a $195 price target on LinkedIn. The firm expects LinkedIn to match previous estimates, but warned shares are vulnerable to even a slight miss on subscription growth.
  • 09/24: Evercore Partners reiterated an Overweight rating and raised the target on LinkedIn from $250 to $280, according to a post on Barron's Online. The report cited growth in the premium subscriber base and expansion of the Marketing Solutions division.
  • 09/03: LinkedIn plans to sell $1.0 billion in stock for general corporate purposes and to strengthen its balance sheet.

Technical Review

LinkedIn has been one of the top performing US stocks in 2013, rising well over 75% YTD. Despite the surge in momentum, the shares have been meandering in a fairly narrow range between $240 and $250. A solid earnings release could easily push LinkedIn to fresh all-time highs, while there is strong support at $240, with downside risk to $230, followed by $210 in the event earnings disappoint. (Chart courtesy of StockCharts.com)


(Click to enlarge)

Summary

LinkedIn has been one of the top stocks of 2013, thanks in part to rapid user growth, increased content, emerging market opportunities, well-received strategic acquisitions, and an improving job market. However, the valuation is extreme, with the shares fetching over 100x forward earnings, leaving the company vulnerable to even the slightest missteps.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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