LinkedIn Delivers Strong Results, But Stock Trades Down

-5.48%
Downside
196
Market
185
Trefis
LNKD: LinkedIn logo
LNKD
LinkedIn

LinkedIn (NASDAQ:LNKD) outperformed expectations during the second quarter — its revenue rose by 33% to $712 million, which far exceeded its initial expectations. In constant currency terms, its top-line growth was higher at 38%. Though the stock initially reacted positively to the earnings report, it is now down by over 10%. We believe this investor reaction stems more from unrealistic market expectations, as the core fundamentals of the business showed impressive growth during the second quarter. There were various positives in the earnings report including: 1) increases in engagement levels and mobile usage: 2) the addition of new customers (with a decrease in customer churn);  3) growth in the Sponsored Updates and Sales Navigator products; and, 4) promising results from China. We believe these results reflect the  strong outlook we see for both the core-LinkedIn business as well as the recently acquired Lynda in the coming years. [1]

See our complete analysis for LinkedIn

Robust Growth Was Seen Across Business Segments During Q2

Relevant Articles
  1. Can LinkedIn’s New Salary Benchmark Tool Drive Premium Memberships?
  2. LinkedIn Reports Solid Q3 Earnings; Microsoft Merger On Track
  3. What To Expect From LinkedIn’s Q3 Earnings
  4. LinkedIn’s Next Move To Increase Its User Base In India
  5. Why Is LinkedIn Focusing On India?
  6. Here’s How LinkedIn Can Benefit From Expanding Pro-Finder?

LinkedIn delivered broad-based growth across all business segments during the second quarter.  Talent Solutions’ revenue rose by 38% year over year to $443 million, to comprise  around 62% of the overall revenue. This performance was driven by acquisition of new customers, as well as improvement in customer churn. Additionally, Lynda contributed $18 million to the segment’s revenue as its acquisition closed in mid-May.

Marketing solutions’ revenue grew by 32%, fueled by high growth in the Sponsored Updates product, where revenues rose by more than 100% during the period. The Lead Accelerator product also witnessed high demand during the quarter. However, display ad revenue fell by around 30% year to year, owing to secular trends and a reduced focus on this product line. Going forward, we expect continued challenges in the traditional display business to be offset by strong growth in ‘Sponsored Updates’ and ‘Lead Accelerator’ products.

Premium Subscriptions’ business increased by 22% during the quarter, fueled by increase in general subscriptions and strong rise in Sales Solutions’ revenue (due to accelerating demand for Sales Navigator product). Based on these results and the current trends, the company also upped its guidance for the full year—revenue and adjusted EBITDA forecasts were raised by 40 and 35 million respectively to $2.94 billion and $665 million for 2015. A large part of this increase was driven by higher forecasts for Lynda, which is now expected to contribute $90 million for the year, as compared to the previous estimate of around $40 million.

Growth Strategies Continue To Fuel Higher Engagement Levels

LinkedIn’s growth strategies continued to gain traction during Q2, leading to higher engagement levels on the platform.  While the overall cumulative number of members rose by 21% to 380 million, member page view growth of 37% far outpaced the 16% increase in unique visiting members, leading to large increase in engagement (as measured by page views per unique visitor).

The company’s mobile strategy continued to show results, as mobile grew at twice the rate of overall member activity.  It now comprises around 52% of the overall traffic to LinkedIn. Active job postings rose dramatically during the quarter to 4 million, as compared to around 1 million in the prior year. [2] The publishing platform also showed progress, as the weekly long-form posts rose to over 130,000 with more than 1 million publishing members.

Finally, the international expansion showed progress as Chinese members increased to 10 million.  This number should continue to rise at a strong rate driven by strategic partnerships with Chinese players such as WeChat, Alibaba, QQMail, and by the launch of a new app ‘Chitu’ for the Chinese market (currently in beta-stage). We believe these strategies are showing promising results and will continue to strengthen member activity on the platform, leading to increased attractiveness for both corporate as well as individual customers in the long-run.

  

We are in the process of revising our $174 price estimate for LinkedIn’ stock.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. LinkedIn Announces Second Quarter 2015 Results, LinkedIn Investor Relations, July 30, 2015 []
  2. LinkedIn (LNKD) Jeffrey Weiner on Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, July 30, 2015 []