LinkedIn Earnings Preview

| About: LinkedIn (LNKD)

LinkedIn (NYSE:LNKD) will release its Q4 2013 results on February 6th. The stock price has come down meaningfully in the last five months which we believe is the result of the market realizing that the high growth that LinkedIn is currently experiencing is not sustainable. On that note, we'd like to convey that although we expect strong growth from LinkedIn in the upcoming quarterly results, the figures may come down sequentially. The expenses are likely to remain on the higher side, which puts the market valuation under doubt. Several research houses have a neutral rating on LinkedIn especially after the recent pullback in the stock. Here is what you can expect from the company's fourth quarter results.

Our price estimate for LinkedIn stands at $154, implying a discount of about 25% to the market price.

What Does The Market Think?

There are mixed reviews by key research houses on how LinkedIn's business is likely to perform going forward. Bank of America - Merill Lynch downgraded LinkedIn's stock last month from buy to neutral stating that the growth in 2014 and 2015 is likely to be on the conservative side (1). The company's analysts believe that the job postings and site usage slowed down in Q4 2013 and the effect is likely to persist for the next couple of quarters (1). In addition, Citigroup analysts believe that the upside to current consensus estimates is not likely, even though recent feature additions in marketing solutions business can lend some support. (2) However, Wunderlich securities recently initiated coverage on LinkedIn and is bullish on the stock, citing the company's potential to expand in the Chinese market.

Here Is What We Believe Investors Can Expect From Upcoming Earnings

We believe that LinkedIn's focus on mobile devices, the continued improvement in features to enable better marketing and targeting, and the ramp up of the sponsored updates product likely drove strong growth in Q4 2013. In the third quarter, the company's overall revenues jumped by 56% due to the continued strength in Talent Solutions and Premium Subscriptions business segments, which together account for roughly 65% of the company's value, according to our estimates. One of the key takeaways from the third quarter earnings was that LinkedIn has been making meaningful efforts to enhance its product on mobile platforms, which is going to be the key growth channel going forward. Mobile devices, including smartphones and tablets, are gaining strong traction globally and it is imperative for Internet giants such as LinkedIn to bring their core services to their mobile apps. The impact of these efforts is likely to be visible in Q4 results.

According to our estimates, the company is on track to earn $1.5 billion in revenues in 2013. A lot of this growth will be driven by international expansion, enhanced features and capabilities that will attract user upgrades, and LinkedIn's growing popularity as an effective recruitment platform. On the flip side, the R&D and SG&A expenses are likely to remain high as the company continues to invest significantly in building its sales force.

Disclosure: No positions.

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Tagged: , Internet Information Providers, Earnings
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