LinkedIn Earnings Preview: Growing Membership & Improvement On Mobile

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LNKD: LinkedIn logo
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LinkedIn

LinkedIn (NASDAQ:LNKD) will report its Q1 2014 earnings on May 1st. The stock has declined substantially over the last few months and the company will need to demonstrate brisk revenue growth alongside meaningful gain in profitability in order to rekindle investor faith. There has been a broader market correction and most of Internet and technology stocks have fallen in 2014. There is nothing wrong with the company’s business model, as it still remains the market leader in its segment and continues to disrupt the recruitment services industry. There are still no strong direct competitors and that bodes well for its business. LinkedIn’s membership base is growing, and the company continues to invest in mobile platform. Here is what we expect from the upcoming quarterly results

Our price estimate for LinkedIn stands at $141, implying a discount of about 5% to the market price.

See our complete analysis for LinkedIn

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Continued Growth In Global Membership

LinkedIn recently surpassed 300 million registered members globally, adding roughly 23 million new members in the last three and half months. This continued membership increase will be one of the key factors driving the company’s revenue growth in Q1 2014. LinkedIn has managed to add more members due to its continued product enhancements, strong marketing, focus on mobile app and the broader trend of more knowledge workers finding the portal useful.

The company has introduced several features in recent years including endorsements, redesigned company pages, launching the website in local languages, new profile features, notifications, the ability to follow thought leaders and sponsored jobs to help companies promote key positions to the right people. It has also been pushing a relatively nascent feature, Sales Navigator, and the initial results have been promising. Sales Navigator can be a useful product for LinkedIn as it helps sales professionals in better targeting customers, building relationships and marketing their products.

Improvement On Mobile Front

LinkedIn continues to invest in tapping mobile platform, which accounted for roughly 41% of its unique visitors in Q4 2013, up from 8% in Q1 2011. [1] We expect this figure to go up this quarter. In some international markets this percentage has surpassed 50%. For many companies that rely on advertising, mobile growth has typically resulted in a slowdown in the revenue growth. This may happen for LinkedIn, since a notable portion of its business is ad-based. In addition, the paid services may not be as attractive on mobile as on desktop unless all the core features are fully implemented. However, the company has been working hard in this area and has launched Recruiter Mobile and Mobile Work With Us features to target passive candidates. It has rolled out new versions of its mobile app portfolio in recent quarters, extending beyond core app experience by launching dedicated apps for recruiter, pulse and contacts.

Watch Out How The R&D & SG&A Costs Trend

While LinkedIn has shown impressive revenue growth in recent years, its costs remain high and this is something that has been often overlooked. The company’s SG&A (selling, general and administrative) and R&D (research and development) costs stood at a combined value of 72% of gross profits in 2013, thus accounting for maximum contribution to erosion of profits. If the company wants to impress the investors, it will need to demonstrate a meaningful gain in operating leverage and thus, a decline in these costs as percentage of revenues or gross profits. We’ll be keenly watching how these expenses trend this quarter.

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Notes:
  1. LinkedIn’s Q4 2013 Earnings Transcript []