2015 In Review: LinkedIn, Facebook And Twitter

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LinkedIn

Among social networking companies (LinkedIn, Facebook and Twitter), Facebook’s stock delivered the best performance during 2015, on the back of meaningful growth in user base across all key platforms and a significant increase in revenue. On the other hand, Twitter gave a disappointing performance, as its outlook was weakened by slowing user growth and problems in monetizing direct response ad products. Moreover, Twitter saw a number of management changes during the year. LinkedIn delivered a mixed performance — although its stock tumbled following the Q1 earnings release, it recovered during the second half of the year.

See our complete analysis for LinkedIn

LinkedIn:

Although LinkedIn recorded significant growth in its user base and other financial metrics during the nine months ended September 2015, its stock price showed no change year to date (comparing September-end prices to those at the beginning of the year). This is as the company’s stock plummeted substantially post the first quarter earnings release, on negatives such as reduced outlook, challenges in Europe and currency headwinds. However, its stock reacted positively to the third quarter earnings results, where the company both outperformed expectations on both top-line and bottom-line and delivered a meaningful increase in engagement metrics.  Going forward, we expect LinkedIn’s outlook to be strong, supported by strategies of building a publishing network, expanding into international geographies, improving the mobile experience, and adding job postings. Moreover, the launch of new products including LinkedIn@ Work, LinkedIn LookUp and LinkedIn Elevate could further enhance revenues in coming years. 

We estimate revenues of around $3.0 billion for LinkedIn in 2015 and non-GAAP diluted EPS of $2.76. We maintain a $214 price estimate for LinkedIn’s shares, which is nearly at par with the market price.

Facebook:

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Among social networking companies (listed in the table above), Facebook showed the most impressive performance — with its stock rising by around-35% year-to-date. This solid performance was supported by healthy user base growth on both the core platform, as well other platforms (ncluding Messenger, Instagram and WhatsApp). In addition, its top-line rose significantly during the year, even on a much higher base. However, its margins slipped due to planned increases in expenses. We think Facebook’s future outlook looks promising, due to substantial monetization potential on Messenger, WhatsApp, Instagram, and Oculus. As a result, we believe the company will gain a higher share of the digital advertising market over the coming years.

We estimate Facebook’s top line and non-GAAP diluted EPS in 2015 to be $17.7 billion and $2.16, respectively. We maintain a $109 price estimate for Facebook’s shares, which is slightly ahead of the current market price.

Twitter:

The year 2015 was a difficult one for Twitter, as it witnessed various challenges, including:  1) a  slowdown in user base growth; 2) a deceleration in top-line growth; 3) problems with the monetization of direct response ad products; and,  4) a host of management changes. As a result, the company’s stock has plummeted by over 35% year to date. While the new management under Jack Dorsey is making several efforts to reinvigorate growth, the impact of these measures remains to be seen. A number of product changes have lately been introduced, such as the Moments feature and a ‘like’ button, and the company continues to question the importance of a reverse chronological order in timelines. Notwithstanding various challenges, we think the market could currently be undervaluing Twitter.   In the event user growth begins to accelerate on the micro-blogging platform, then it could lead to significant ncrease in the company’s stock price.

We estimate revenues of around $2.2 billion for Twitter in 2015, and non-GAAP diluted EPS of $0.49. We maintain a $34.49 price estimate for Twitter’s shares, which represents around a 50% premium to the current market price.

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