Upside for LNKD Stock, Analyst Says
Many people turned bearish on LinkedIn Corp (NYSE:LNKD) stock after its gigantic plunge in February. I hope you weren’t one of them; if you were, you’d likely have taken some losses as LinkedIn stock has since been on a steady climb. Now, one analyst is saying that another rally in LNKD stock could be right around the corner.
On Thursday, June 9, Mark Mahaney at RBC Capital raised his rating on LinkedIn stock from “Market Perform” to “Outperform” with a price target of $160.00. That represents a more than 17% potential upside. (Source: “LinkedIn’s Position Still Strong in HR, Says RBC Survey,” Barron’s, June 9, 2016.)
One of the reasons behind his decision to upgrade LinkedIn stock was that the platform is simply indispensable to human resources (HR) professionals.
In a recent survey of HR professionals conducted by RBC, 67% of respondents said that they had used LinkedIn in the last 12 months. What’s more is that the percentage has been growing over time. In RBC’s March 2013 survey, only 31% of respondents used LinkedIn. That number grew to 41% in February 2014, continuing to rise to 67% in the most recent survey.
Moreover, customers are planning to spend more on the online professional network. RBC’s latest survey showed that 45% of respondents indicated an intention to increase their spending over the next 12 months. (Source: “RBC Endorses LinkedIn, Sees 20% Upside,” Benzinga, June 9, 2016.)
“Our summary takeaway is that LNKD appears to be executing reasonably well against very large Hiring Solutions and Marketing Solutions TAMs and doesn’t appear to be facing material new competitive challenges,” said Mahaney. “We thus continue to view LNKD as a fundamentally good growth asset, with a healthily diversified revenue base.” (Source: Ibid.)
The market cheered for the upgrade as LinkedIn stock closed two percent higher on Thursday.
To me, though, this doesn’t really come as a surprise. More than three months ago, I pointed out why LNKD stock could start rising again. Still, RBC’s survey confirmed just how much of a necessity LinkedIn’s service is to its customers.
But that’s not really big news either. If you paid any attention to the company’s latest earnings report, you’d already know that it has been firing on all cylinders.
In the first quarter of 2016, LinkedIn increased its revenue by 35% year-over-year to $861 million, which also beat Wall Street’s expectation of $828 million. The company’s bottom line was more impressive, as it delivered $0.74 in adjusted earnings per share, smashing analysts’ estimates of $0.60 per share. (Source: “LinkedIn Announces First Quarter 2016 Results,” LinkedIn Corp, April 28, 2016.)
All segments showed substantial improvements compared to the year-ago period. But as you would expect from the increasing usage by HR professionals, the most notable segment was Talent Solutions, which showed a whopping 41% year-over-year growth in its revenue to $558 million.
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Also, after lackluster user growth in the fourth quarter of 2015, LinkedIn started picking up new members again. In the first quarter, LinkedIn’s unique monthly visiting members grew six percent sequentially to 106 million. At the same time, user engagement has improved. Member pages viewed totaled 45 billion in the first quarter, 32% more year-over-year and 22% more sequentially. (Source: “Q1 2016 Results Presentation,” LinkedIn Corp, April 28, 2016.)
Although LinkedIn’s userbase is smaller than some of those of the other social network platforms, it plays an indispensable role in finding and filling employment openings for job seekers and HR professionals. Think about it: do you really want the hiring manager to see your partying pictures posted at 3:00 a.m. on Facebook?
Last but certainly not least, LinkedIn stock could be recession-proof. The reasoning is simple. When the economy is down and workers are getting laid off, more people will be looking for jobs. As the go-to choice for job seekers, the company could keep doing well, even when times get tough.
The Bottom Line on LNKD Stock
Mr. Market might be moody at times, but value cannot go unnoticed forever. Those who were willing to pick up LinkedIn stock after its giant downfall have been handsomely rewarded. Given the growth potential ahead, it might not be too late for those interested to still take a look at LNKD stock.