LNKD Stock: The Top 3 Reasons to Be Bullish on LinkedIn Corp

LNKD StockLinkedIn Corp (NYSE:LNKD) stock is set to report first-quarter earnings on Thursday and investors are praying that the outcome fares much better than the company’s last earnings report. Shareholders surely remember that fateful day back in February when LNKD stock plummeted more than 40% after the company lowered guidance for the rest of the year.

That kind of drop is enough to put investors off LNKD stock forever. But there’s still a lot to like about LinkedIn. The stock has recovered about 20% of its tumultuous drop since the last earnings report.

Let’s see what could get LNKD stock to recover 100% of it…

Talent Solutions Overhaul

“Talent Solutions” is the largest division of LinkedIn’s revenue sources, accounting for 62% of total revenue in the latest quarter. It grew 45% over the previous year, but as impressive as that number is, the segment also caused the biggest area of concern among investors.

LinkedIn’s management forecast that this growth rate would be in the mid-20% range in 2016. Management is blaming the reason for the much-lowered guidance on slow growth in international markets. (Source: “LinkedIn Announces Fourth Quarter and Full Year 2015 Results,” LinkedIn Corp, February 4, 2016.)

The reason it’s so concerning for investors is because growth in Talent Solutions was as high as 82% just a couple of years ago. Growth has been on a downward path ever since.

Mid-20% growth in a key business segment is a problem most companies would love to have, but for fickle investors, slowing growth is the death knell for some stocks. And that’s exactly what happened with LNKD stock last quarter.

Now that expectations are tempered, any surprise from LinkedIn could light a fire beneath LNKD stock.

The company has also been overhauling its “Recruiter” platform, which is part of Talent Solutions.

In the latest earnings call, LinkedIn CEO Jeff Weiner said that the “next-generation Recruiter is more intuitive and relevant, and…will increase a recruiter’s ability to find passive talent.” He added that in 2016, “we will begin our journey toward addressing long-tail hiring by making Recruiter simpler to use.” (Source: Ibid.)

If the new Recruiter ends up being as successful in helping companies find talent as LinkedIn hopes it will be, the results could be another boon for LNKD stock. But investors will have to take a long-term outlook, as the benefits from Recruiter probably won’t be seen until the end of this year or early next year.

China Expansion & Engagement

China represents a significant opportunity for LinkedIn, as it has become the fastest-growing market for the company.

LinkedIn entered China in 2014 and since that time, the company has seen the number of users more than triple, from four million to 13 million. (Source: “LinkedIn China users more than triple to 13 million in two years,” LinkedIn Corporation, December 15, 2015.)

In last quarter’s conference call, LinkedIn management said that China has become a very important part of the company’s growth strategy going forward. The company is about to begin investing heavily in the country to start engaging members.

During the conference call on Wednesday, management should shed more light on the company’s China market. If management shares some interesting numbers, such as a rapid increase in users or user engagement, LNKD stock might get a bit of a boost.

Cheap LNKD Stock Price

February’s massive sell-off of LNKD stock might have presented an opportunity for investors, as the stock has never been cheaper. LNKD stock sports a forward price-to-earnings (P/E) ratio of 30. That still sounds kind of high, but just a few years ago, LNKD stock was more than 1,000 times earnings. (Source: “LinkedIn’s Lament: 50% Growth Isn’t Enough If P/E Is 1,000,” Forbes, May 2, 2013.)

Over the next five years, analysts are expecting LinkedIn to grow earnings at an average annual rate of almost 25%. (Source: “LinkedIn Corporation Analyst Forecasts Earnings Growth,” NASDAQ, last accessed April 25, 2016.) With that kind of growth, LNKD stock may be a bargain heading into earnings.

The Bottom Line on LNKD Stock

Investors blew off LinkedIn last quarter because expectations were simply too high. Now that the price of LNKD has come down a lot, there’s still a lot to like about LinkedIn. Growth, particularly in Talent Solutions, is still high, expansion in China is on the horizon, and the stock is insanely cheap compared to past valuations. Now may be a better time than ever to give LNKD stock a serious look.