LinkedIn Beats Q4 Estimates, But Stock Plummets On Weak Guidance

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LNKD: LinkedIn logo
LNKD
LinkedIn

LinkedIn (NASDAQ:LNKD) posted solid fourth quarter and full year 2015 results with growth across all its divisions. Overall revenues increased 34% year-over-year (y-o-y) in the fourth quarter to $862 million and 35% y-o-y in full year 2015 to almost $3 billion. The company reported non-GAAP earnings of $0.94 per share in Q4 2015 compared to $0.61 per share in Q4 2014 and analyst consensus estimates of $0.78 per share. However, the company’s strong recent performance could not compensate for investors’ disappointment over its weak Q1 2016 guidance, and LinkedIn’s stock fell over 40% through Friday. For the first quarter ending March 2016, the company expects EPS of $0.55 against analyst consensus estimate of $0.75. In terms of top line, it expects full year 2016 revenue to be around $3.6-$3.65 billion, missing analyst consensus estimate of $3.9 billion.

We are in the process of updating our $214 price estimate for LinkedIn’ stock.

See our complete analysis for LinkedIn

Weak Guidance Caused The Stock To Tumble

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LinkedIn lost over a third of its value following Thursday’s earnings release, primarily on account of the company’s weak Q1 and full year 2016 guidance. For Q1 2016, the company estimates revenue of $820 million which is far below market expectations. Additionally, the company also lowered its outlook for the full year with adjusted EBITDA and non-GAAP EPS revised to $950 – $975 million and $3.05 – $3.20, respectively.

The key factors that drove these reduced forecasts included currency headwinds, focus on improving and scaling ad products such as Sponsored Content, shutting down of Lead Accelerator and the continued re-alignment of sales workforce. Pressure in the Asia-Pacific (APAC) as well as Europe, Middle East and Africa (EMEA) regions due to weak economic conditions were also driving factors.

Engagement Metrics Showed Healthy Growth

During Q4 2015, cumulative members rose by 19% y-o-y to 414 million, member page views increased by 26% and unique visiting members grew 7% to an average of 100 million per month. This led to a 20% y-o-y rise in engagement – measured by page views per unique visiting member. We are encouraged by this strong growth in engagement metrics, as it has come on top of company’s efforts to reduce its reliance on transactional engagement strategies based on sending emails. LinkedIn reduced the number of emails sent per member by 40% in 2015 in line with its strategy to improve user experience.

LinkedIn is also making significant improvements to streamline its mobile app. This was evident from the fact that mobile activity grew 3x faster than overall member activity and it now contributes 57% of all traffic to LinkedIn.

Active Job Postings Cross 6 Million

LinkedIn’s efforts to enhance mobile apps, build a publishing network, add job postings and expand into international geographies continued to gain ground during the fourth quarter. Most importantly, China continued to drive growth for the company with the country-focused ‘Chitu’ app’ showing strong traction.

In addition, the number of active job postings more than doubled over last year to over 6 million, leading to higher engagement levels from members seeking jobs.

New Products Could Add Long-Term Value

LinkedIn recently unveiled new products including LinkedIn Referrals, LinkedIn LookUp and LinkedIn Elevate, which have shown promising early results. The company also plans to launch a revamped Recruiter platform in 2016. We believe these initiatives could bolster and add new revenue streams for the company over the next 1-2 years.

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