Just How Bad Was LinkedIn's Outlook?

Daniel James profile picture
Daniel James
216 Followers

Summary

  • LinkedIn stock got crushed last week, as investors fretted over far weaker-than-expected guidance.
  • However, much of this weakness seems to be due to Forex headwinds and acquisition costs.
  • With the underlying business still looking fairly healthy, investors may have overreacted to the news.

One of the biggest stories in tech last week was the savage beating incurred by LinkedIn (LNKD). Although the company beat on both earnings and revenue, the outlook for the current quarter came in miles below analyst expectations, sending the stock down as much as 25%. Although analyst target price cuts were quick to follow, some defended the professional social network. Just how bad was the update?

Missing the mark

To be fair, as far as missing analyst figures goes, the numbers were quite spectacularly far off from the mark. Analysts on the whole were expecting Q2 revenue of $719 million, with earnings of around $0.74 per share. LinkedIn, on the other hand, is projecting EPS of $0.28, more than two-and-a-half times less than the consensus, on revenue in the range of $670-$675 million. Investors more or less ignored the solid Q1 results and ran for the exit.

One of the things blamed for the weak guidance was something that's been affecting US companies operating abroad in a range of sectors: the strong dollar. This is generally difficult to take into account in terms of analyst projections, and a number of other companies have missed guidance due to currency impact. LinkedIn expects the additional revenue impact from currency swings to be at around $13 million for Q2 and $50 million for the full year.

The other factor that was identified as a drag on earnings was the recent acquisition of Lynda.com, an online education company. The $1.5 billion purchase is the company's biggest ever, and offers a range of advantages. Jobseekers can easily see which skills they need to pursue a specific opening through LinkedIn's interface, and then get training through the integration of Lynda's videos in the platform. What LinkedIn is probably really after though is the company's user data, which it can use to more effectively

This article was written by

Daniel James profile picture
216 Followers
I am a part-time investor interested in bonds, stocks, etfs and macro.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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