Major Upside Ahead for LinkedIn Stock?
The stock market has its mood swings. A company can post a perfectly good earnings report and its stock can still get killed. Yep, I’m talking about LinkedIn Corp (NYSE:LNKD) stock.
It would take a lot of guts to hold LinkedIn stock going into earnings next week. Last time it reported, the stock tanked 43.8% in a single trading session. Ouch!
However, don’t forget what billionaire investor Warren Buffett said: “Be fearful when others are greedy and greedy when others are fearful.”
Also, don’t forget that Buffett also told us to look at stocks as individual companies rather than just ticker symbols.
With those words in mind, let’s take a look at LinkedIn stock.
You see, LinkedIn has a unique position in the social network business because it’s business-oriented. Sure, its userbase is nowhere near that of Facebook Inc’s (NASDAQ:FB). However, when it comes to business networks, no other company can even come close to LinkedIn.
For recruiters, LinkedIn is not just an option; it’s a necessity. Ask any human resources (HR) person and they’ll tell you that it’s impossible to recruit without LinkedIn these days. What’s more is that once it becomes a must-have for job-seekers and recruiters, the company can roll out paid services.
In fact, that’s exactly what LinkedIn is doing. The company’s unrivalled competitive advantage has brought tremendous growth to its Talent Solutions segment. In the fourth quarter of 2015, revenue from Talent Solutions surged 45% year-over-year. (Source: “LinkedIn Announces Fourth Quarter and Full Year 2015 Results,” LinkedIn Corp, February 4, 2016.)
Due to LinkedIn’s unique service, the company could be recession-proof. The idea is simple. When the economy is struggling and people are getting laid off, there will likely be more job search activity going on. Since LinkedIn is the go-to choice for job-seekers, it might be able to see increasing usage during economic downturns.
Of course, LinkedIn still has its issues. For instance, the company’s user engagement could use some help. By the fourth quarter of 2015, LinkedIn had 414 million cumulative members. However, its monthly active users (MAUs) were only 100 million, and that number stayed flat quarter-over-quarter.
What this suggests is that a lot of people registered on LinkedIn, but didn’t use it frequently enough. If the company can improve user engagement, there might be more monetizing opportunities down the road.
Despite LinkedIn stock’s dramatic downturn in February, there are still analysts upbeat about the company. In particular, Piper Jaffray Companies analyst Gene Munster reiterated his “Overweight” rating on LNKD stock in March, with a price target of $175.00. That’s an over 45% potential upside. (Source: “Analysts Pound the Table on Apple Inc. and LinkedIn Corp,” Smarter Analyst, March 17, 2016.)
“We expect investors to act cautiously to LNKD over the next few quarters, but believe that the company remains well positioned for the long-term as LinkedIn remains relatively unchallenged in its Talent Solutions segment with a strong moat of over 300 million user profiles and optionality in its Sponsored Update, Sales Navigator and Education businesses,” said the analyst (Source: Ibid).
The Bottom Line on LNKD Stock
The company is scheduled to report Q1 2015 earnings on Thursday, April 28 after the closing bell. The bearish sentiment came after the last earnings report could still be a drag on LNKD stock. But that doesn’t change the fact that LinkedIn is running a solid business with wide economic moats.