Analysts Weigh In on Internet Giants: Netflix, Inc. (NFLX) and LinkedIn Corp (LNKD)

Are internet giants here to stay? Analysts weigh in on Netflix, Inc. (NASDAQ:NFLX) and LinkedIn Corp (NYSE:LNKD) to address lingering concerns for both companies. While one analyst remains bullish on Netflix’s longevity and growth potential, another is beginning to worry about LinkedIn’s long-term prospects.

Netflix, Inc.

While video-streaming giant Netflix has fallen out of the headlines for some time, analyst Benjamin Swinburne of Morgan Stanley highlights the company’s international growth and long-term potential. He reiterates an Overweight rating on Netflix with a $125 price target, marking a 25% upside.

Swinburne is bullish on Netflix’s international growth opportunities. He believes that Netflix can build an international subscriber base of 100 million people, excluding China. While he acknowledges a “real concern” following the company’s 2Q16 subscriber additional guidance in which the company forecasted 500,00 new domestic subscribers and a 2 million new international subscribers gain, falling short of expectations of 586,000 and 3.5 million, respectively. This guidance is leading some to believe that Netflix has “hit a wall.” Swinburne debunks this concern, explaining that “in all markets three years or older, [Netflix] has reached well above double-digit penetration and is generating profits.” Second, he continues, “Netflix has accomplished this in markets that range widely in terms of pay-TV penetration, native language, and household income levels.”

Moving on to Netflix’s long-term viability, Swinburne points out that the company is re-investing price increases into “content spending to build long-term scale,” which is the “right strategy.”  He explains, “2Q guidance for QoQ margin compression in the US has led to concerns that the operating leverage inherent in Netflix’s model is not as rosy as previously expected… However, with domestic ARPU growth poised to accelerate as more grandfathered pricing expires in 3Q16, we expect gross profit per sub growth and gross margin expansion to re-accelerate in 2H16 and beyond.”

According to TipRanks, Swinburne has a 63% success rate recommending stocks with an average annual return of +10.9%. He is ranked in the top 10% of all analysts on Wall Street. Out of the analysts who have covered Netflix in the last 3 months, 64% are bullish, 28% are neutral, and 8% are bearish. The average 12-month price target is $120.52, marking a 20% potential upside.Swinburne stat

LinkedIn Corp

LinkedIn is facing falling job postings, leading Rob Sanderson of MKM Partners to sternly address the company’s viability. The analyst hashes out his concerns, which range from decreasing online job postings to accounting practices.

The analyst explains that after “73 consecutive months of y/y growth, online jobs postings have been in decline since February.” May in particular was the worst month “by far” since January 2009, with online job postings down by 285k from April and down 552k year-over-year. While online job postings is not a direct revenue driver for the company, “it is a reflection of overall hiring activity and should be considered a check on demand vibrancy.” Aside from online job postings, Sanderson remains concerned that further “deterioration” of the company’s Talent Solutions and Hiring segments could lead to a shortfall in revenue in the second half of the year.

Sanderson goes on to comment that LinkedIn’s growing focus on GAAP over non-GAAP will be negative for the company. He explains, “A growing focus for several months, this has likely weighed on LNKD shares to some degree… We prefer non-GAAP and factor dilution for stock awards into our share count in our long-term earnings analysis. While we are comfortable with the dilutive impact on EPS power, LNKD does not screen well in the GAAP vs. non-GAAP debate.”

Sanderson reiterates a Neutral rating on the stock with a $130 price target, noting that he likes the company’s “long-term prospects” but believes “sentiment on the company’s opportunity is overly negative.” He concludes, “We would wait for clarity on Hiring revenue exposure to macro/cyclical factors, or a break-out in either Learning or Sales before potentially recommending the stock.”

According to TipRanks, 48% of analysts are bullish on LinkedIn while 52% are neutral. The average 12-month price target is $160.85, marking an 18% potential upside from current levels.

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