Friday, August 5, 2011

LinkedIn (LNKD) Reports First Quarter as a Public Company

LinkedIn (LNKD) reported its first quarter as a public company with a surprising profit, and nice revenue growth.  However, some analysts rightly question the valuation.  That said, when the market is good, people are piling into a few select high growth stocks without regards for valuation.  Valuation will only matter.... when it does.

Via AP

  • LinkedIn earned $4.5 million, or 4 cents per share, in the April-June period. That contrasted with earnings of $938,000, or 2 cents per share, at the same time last year.  Non-GAAP EPS for the second quarter was $0.10.
  • Revenue more than doubled from last year to $121 million while membership climbed 61 percent to 116 million at the end of June.
  • Revenue from hiring solutions, or services that help companies hire employees -- which makes up the bulk of the social network's business -- surged 170 percent to $58.6 million, racing past expectations.  Revenue from marketing solutions jumped 111 percent to $38.6 million, while sales of premium subscriptions rose a more sedate 60 percent to $23.9 million.
  • Analysts, on average, had projected a loss of 4 cents per share on revenue of $104.5 million, according to FactSet.
  • The earnings in LinkedIn's most recent quarter represented the most money the company has made in any three-period so far in its eight-year history. It's still a puny profit for a company whose market value is sitting around $10 billion.
  • Losses could loom ahead too. LinkedIn has indicated it's willing to sacrifice short-term earnings to increase spending on technology and new product development.  Growth is also expected to slow, partly because of economic uncertainty and partly because of the temporary lift provided by the IPO publicity.
  • LinkedIn expects its third-quarter revenue to climb as high as $125 million, which would be slightly below the second-quarter growth rate of 120 percent. For the full year, LinkedIn sees its revenue rising to as high as $485 million, roughly doubling from $243 million in 2010.
  • LinkedIn gets more than two-thirds of revenues from fees that it charges companies, corporate recruiting services and other people who want broader access to the profiles and other data on the company's website. The remainder comes from advertising.

Some analyst reaction:
  • Morgan Stanley analyst Scott Devitt this morning cut his rating on the stock to Equal Weight from Overweight on a valuation basis, noting that his base case valuation on the stock of $110 leaves little upside.
  • Evercore Partners analyst Ken Sena reduced his rating to Underweight from Equal Weight, setting a $70 price target. He is concerned about both valuation and the coming expiration of lock-up agreements that affect 92% of the company’s outstanding shares.
  • William Blair analyst Timothy McHugh picked up coverage of the stock with a Market Perform rating. “If we used a multiple of 7-9 times projected 2012 revenue for hiring solutions, 6 times for premium subscription, and 14-16 times for marketing solutions, shares would be worth $55-$80,” he writes. “Upside to our revenue estimates, which is very possible, could push this valuation range up a bit. However, the company’s valuation leaves no room for error, in our opinion, so we prefer to find a better entry point on the stock.”

Full report here.

No position

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