Following LinkedIn Corp’s (NYSE:LNKD) Q2 earnings report announcement on July 30, LinkedIn stock went on a roller coast ride. Shares soared about 12% in after-hours trading before declining sharply following closer scrutiny of the company’s guidance and different businesses. However, analysts maintain a Moderate Buy consensus given LinkedIn’s vast product and market opportunities.
LinkedIn, a social media website for professional networking, beat Wall Street expectations on its quarterly earnings. LinkedIn exceeded analysts’ expectations of 30 cents a share on the top line by reporting 55 cents earnings per share. The company posted revenue of $711.7 million, surpassing estimates of $680 million. Likewise, EBITDA came in at $163 million, surpassing estimates of $125 million.
However, this earnings report may in fact show a slower rate of growth because this is the second quarter in a row that LinkedIn has lowered its guidance for its core businesses. Moreover, the company’s guidance included revenues from Lynda.com, an educational website acquired by LinkedIn, without which LinkedIn’s fundamental performance would have weakened.
Ken Sena of Evercore ISI downgraded the stock to a Hold following the earnings report. Sena highlights the difficulty of justifying the current valuation as “you could look at margins that are showing some compression, (and) you could look at some flattening in the user growth on a sequential basis.”
Sena considered the effect of Lynda’s contributions on the company’s positive outlook. The analyst states, “While we are not keen on making rating changes in response to earnings reports, we do see this as a unique situation given that an accounting benefit pertaining to the company’s Lynda acquisition contributed to a result above the high-end of the company’s guidance range, which consequently caused an increase to the FY guide.”
Ken Sena has a 54% success rate overall, with an average return of +6.4% when measured over a one-year horizon and no benchmark.
Despite this neutral rating, other analysts remain bullish on LinkedIn, with calls for patience over the longer term.
Stephen Ju of Credit Suisse maintained an Outperform rating on LinkedIn, raising his price target from $307 to $311. Ju argues that the stock is attractive for three reasons. Firstly, Ju states, “LinkedIn’s current roster of over 37,000 corporate solutions clients implies a minority penetration rate for Talent Solutions on a global base of ~745k addressable businesses that have more than 100 employees.” Second, Ju believes LinkedIn could potentially increase pricing models for enterprise customers in the future. Third of all, “over the longer term LinkedIn can leverage its unique data set to place the right ad in front of the right user at the right time, driving ad inventory pricing higher.” In the near to medium term, Ju believes that the company may be able to roll out and ramp up additional products opportunities, such as its Sales Navigator or Marketing and Talent Solutions businesses, to monetize LinkedIn’s “unique” data assets.
When measured over a one-year horizon and no benchmark, Stephen Ju has an overall success rate of 64% recommending stocks, earning a +19.2% average return per recommendation.
Similarly, Brian Pitz of Jefferies & Co. reiterated a Buy rating on LinkedIn, raising his price target from $290 to $300. Like Ju, Pitz noted LinkedIn’s vast array of market opportunities. The analyst states, “The company is still early in large market opportunities, including Sales Navigator, Lead Accelerator, Bizo and Lynda.” Pitz adds, “The company saw dramatic improvements in Sales Navigator customer satisfaction as well as higher than expected customer renewal at the higher Sales Navigator prices implemented this year.”
Overall, Brian Pitz has a 65% success rate recommending stocks and a +15.7% average return per recommendation when measured over a one-year horizon and no benchmark.
Out of 19 analysts polled by TipRanks, 16 analysts are bullish on LNKD, 2 are neutral, and 1 is bearish.
The average 12-month price target for LNKD is $261.29, a 28.55% potential upside from where stock last closed. On average, the all-analyst consensus for LNKD is Moderate Buy.