Time to Bail on LinkedIn Stock?
Rather than focus on LinkedIn Corp’s (NYSE:LNKD) guidance for 2016, LinkedIn stock sank some 40%. This is an opportunity for investors, because LinkedIn’s premise has not changed. Most companies would dream of LNKD stock’s fourth-quarter 2015 revenue growth of 34%—even if it is down from the previous quarter’s 37% growth rate. (Source: “LinkedIn Announces Fourth Quarter and Full Year 2015 Results,” LinkedIn Investors, February 4, 2016.”
In other words, by realistic expectations, membership growth rate is high. Total members at the end of the fourth quarter were about 414 million, up from 347 million from the same period a year ago. That makes for an impressive membership growth rate of 20%. By these measures, LinkedIn is growing faster than Facebook Inc (NASDAQ:FB) with 14% and Twitter Inc (NYSE:TWTR). LinkedIn boasts one of the largest user and content bases.
Two other statistics include unique page views on mobile devices and content sharing also grew, these by a respective 43% and 40%. These metrics suggest LinkedIn has not lost its shine and users continue to find it relevant.
While “Talent Solutions,” LinkedIn’s main revenue-generator (62% of revenue in Q4 2015), grew 32% year-over-year in the latest quarter, investors were disappointed by the company’s guidance for 2016. This year, management expects this growth rate to be closer to the mid-20% range. Actually, LinkedIn has a plan to boost Talent Solutions’ growth thanks to a revamped “Recruiter” platform.
However, LinkedIn still has much more road to cover. At LinkedIn’s current valuation in the $117.00 range, LNKD stock is a bargain, especially considering it was trading at $192.00 three weeks ago—and no fundamentals have changed.
Indeed, LinkedIn has suffered from a malaise well beyond its reach. Investors are afraid that the global stock markets are heading for a replay of tech bubble burst in 2000 or the 2008 sub-prime mortgage crisis. This is the impression early this year, which has been rather unkind to technology stocks. In this climate, any fickle excuse is enough to spark selling.
As such, LinkedIn is not alone. Within weeks, Amazon.com, Inc., Netflix, Inc., and many others have lost more than 30% of their market values. LinkedIn happens to have lost the most, though, with a 44% loss in a single session. If that doesn’t sound dramatic, consider the fact that this amounted to $11.0 billion, all of which went up in smoke because of slightly lower-than-expected forecasts!
LinkedIn will air its first-ever television commercial on Sunday, February 28 during the Academy Awards on ABC. The 30-second spot of an astronaut floating in space is just the tip of a wider effort. The ad will run on TV after the Oscars. The marketing gurus behind the ad say that, while generating users or user engagement would be “cool,” the point is to set “the record straight on what LinkedIn actually is.” (Source: “LinkedIn Will Air Its First-Ever TV Commercial During the Oscars,” Re/Code, February 24, 2016.)
The Oscars ad is perhaps the first major sign of a change in LinkedIn’s advertising strategy to focus on “fewer, more impactful actions.” (Source: “LinkedIn’s First TV Commercial to Air During Oscars,” The Wall Street Journal, February 24, 2016.)
By encouraging users to engage, LinkedIn will revive the initial enthusiasm that propelled its early growth. While, many LinkedIn professionals will discuss the Oscars around the water-cooler on Monday morning, they may also discuss the ad. It should have a bullish impact on LNKD stock.
LinkedIn was the unlucky victim of a “black Friday” in February. But if you could not afford LinkedIn stock before, it has returned to a price not seen since September 2012. Investors may want to take advantage of this surprising phenomenon by taking a closer look at the stock. The fact that Wall Street analysts have issued a price target of $196.20 after a fundamental and technical analysis of LNKD stock proves that little more than fear was behind the 44% single-day loss.
Some of the analysts set a high target of $300.00. The most bearish of them set a price of $135.00. At the current price, that still represents a $25.00 upside for LinkedIn stock. (Source: “Stock Price Target for LinkedIn Corporation (NYSE:LNKD),” The Markets Daily, February 24, 2016.)