Finally, LinkedIn Corp (NYSE:LNKD) stock investors can take a breath. The past two-and-a-half months have been excruciating, with LinkedIn stock trading in the doldrums. This morning, the stock is finally up 5.7%, marking one of its largest opening gains year-to-date.
The reason for LinkedIn stock’s rise is simple—it delivered a tremendous earnings report.
Could This Spark a Trend Reversal In LinkedIn Stock?
In the first quarter of 2016, the company increased its revenue by 35% year-over-year to $861.00 million, beating Wall Street’s expectation of $828.47 million. The bottom line was even better. LinkedIn delivered adjusted earnings of $0.74 per share, slashing analysts’ estimates of $0.60 in adjusted earnings per share (EPS). (Source: “LinkedIn Announces First Quarter 2016 Results,” LinkedIn Corp, April 28, 2016.)
In today’s stock market, good results in the past do not always translate to positive sentiment. In LinkedIn’s previous earnings report, the company also reported solid top- and bottom-line numbers, yet the stock plunged 44% on the next trading session.
The key here is forward guidance. LinkedIn stock crashed in February because the company’s guidance turned out to be below analysts’ estimates. Fortunately, the same thing that brought the stock down is sending it back up this time.
For the second quarter of 2016, LinkedIn expects to generate between $885 million and $890 million in revenue, which, for the most part, is higher than Wall Street’s estimates of $886 million.
The bottom line was the real surprise, though. Analysts were projecting $0.71 in adjusted EPS, while LinkedIn’s guidance range turned out to be $0.74 to $0.77 per share.
The best part is that the company is firing on all cylinders. Every part of LinkedIn’s business locked in more than 20% year-over-year growth.
The highlight was “Talent Solutions,” LinkedIn’s largest segment. In the first quarter, revenue from Talent Solutions surged 41% year-over-year. At $558 million, the segment was responsible for more than two-thirds of the company’s total revenue.
Note that previously, investors were also worried about LinkedIn’s user numbers. While cumulative numbers were good, user engagement wasn’t picking up. This time, though, things are much better.
In the first quarter, LinkedIn’s cumulative members grew 19% to 433 million, marking the largest quarterly gain since the beginning of 2014. Its average monthly active users (MAUs) also increased nine percent to 106 million. Moreover, user engagement has improved significantly, with page views per unique visitor surging 23% year-over-year and hitting an all-time high in the first quarter.
The company’s earnings report also impressed analysts. Among those bullish on LinkedIn stock is Sterne Agee analyst Arvind Bhatia. After seeing the report, Bhatia reiterated his “Buy” rating on LNKD stock with a price target of $218.00. That represents a more than 65% upside potential. (Source: “LinkedIn Bullish View Reiterated at Sterne Agee CRT,” Street Insider, April 29, 2016.)
“Investor sentiment prior to earnings seemed overly bearish and these results should go a long way in alleviating that,” said Bhatia. “We view LNKD as a high quality company with a unique value proposition and a strong management team.” (Source: Ibid.)
The Bottom Line on LNKD Stock
At the end of the day, keep in mind that for a stock to go from $190.00 to $110.00, it takes a 42% drop. But for it to go from $110.00 back to $190.00, it would need a 73% gain. The after-earnings rise is a good start for LNKD stock, but for LinkedIn stock investors to recoup their losses from earlier this year, there is still a long way to go.