Many LinkedIn Corp (NYSE:LNKD) stock investors took huge losses earlier this year. Very few would have expected that a somewhat decent earnings report would cause LinkedIn’s stock price to drop 44% in a single trading session.
LinkedIn Stock Got Killed Last Time This Happened
The worst part is that things haven’t gotten much better afterwards. Usually following such a big move, there would be some sort of retracement. Unfortunately, LNKD stock didn’t have that luxury. Although it has bounced back somewhat, the stock had a hard time staying above the $120.00 mark. Mind you, this was the stock that many Wall Street analysts were giving $200.00-plus price targets not so long ago.
But it’s not like there was any fundamental change to the company’s business. LinkedIn is still the leading business-oriented social network platform in the world. The company’s performance has also been more than solid. In the past four quarters, LinkedIn beat Wall Street’s earnings-per-share (EPS) estimates every single time. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 28, 2016.)
There is still hope, though. The company is reporting earnings again. Will this give LinkedIn stock investors a chance to recoup their losses?
Well, setting a lower bar could be a good start. One of the reasons behind LinkedIn stock’s tumble in February was its lowered guidance. But at the same time, this also allowed Wall Street analysts to lower their expectations accordingly.
For the reporting quarter, analysts are projecting earnings of $0.60 per share, which would be a 5.3% increase compared to the year-ago EPS. Revenue growth is expected to be strong. With an average estimate of $828.47 million in revenue, analysts are expecting nearly 30% year-over-year growth in LinkedIn’s top line. (Source: Ibid.)
The key number to look at is performance in LinkedIn’s “Talent Solutions” segment. Talent Solutions has been the company’s biggest growth-driver. Its 45% year-over-year growth rate helped to improve LinkedIn’s top line by 34% in the previous quarter. At $535 million in revenue, the segment also made up 62% of the company’s total revenue. (Source: “LinkedIn Announces Fourth Quarter and Full Year 2015 Results,” LinkedIn Corp, February 4, 2016.)
As is the case with any social network company, user growth is another key metric for LinkedIn. By the end of 2015, the company had a solid 414 million members. Monthly active users (MAUs), however, turned out to be less impressive, at just 100 million. MAUs were below one-fourth of LinkedIn’s total membership and stayed flat quarter-over-quarter. Limited growth in active users could be a hurdle to LinkedIn’s future monetization efforts. (Source: “Q4 2015 Results Presentation,” LinkedIn Corp, February 4, 2016.)
Note that many analysts are still upbeat about the company, especially with their price targets. Stephen Ju, analyst at Credit Suisse, maintained an “Outperform” rating on the social network company. The analyst has a price target of $176.00, implying a potential upside of more than 45% in LinkedIn stock. (Source: “Credit Suisse Slashes Target on LinkedIn From $230 to $176, Says ‘Patience Is Required’,” Benzinga, April 6, 2016.)
However, Ju pointed out that there were still quite a few issues affecting LinkedIn stock. These included foreign exchange headwinds and the company’s “overly complex” Talent Solutions for small businesses.
SunTrust Robinson Humphrey analyst Robert Peck, despite giving the stock a “Neutral” rating, has a price target of $155.00 on LinkedIn stock, representing a 29% potential upside. Peck remarked that his team “remain cautiously optimistic, but await signs of LNKD being back on track to get more constructive.” (Source: “Bob Peck Cautiously Optimistic on LinkedIn Ahead of Q1 Earnings,” Benzinga, April 25, 2016.)
The Bottom Line on LNKD Stock
LinkedIn is scheduled to report its first-quarter earnings after the closing bell today.
Note that other than top- and bottom-line numbers, investors should also pay attention to its guidance. As we learned from last time, the company’s commentary on its future performance could play a crucial role in changing investor sentiment toward LinkedIn stock.
Still, with guidance and estimates on the conservative side, LNKD stock has a decent chance of delivering another earnings beat.