Analysts cut LinkedIn price target on lowered outlook

LinkedIn shares drop almost 7%, despite healthy quarter

Financial trends and news by Steven Loeb
May 2, 2014
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By most metrics, LinkedIn had an excellent first quarter this year. It came out ahead of expectations in both revenue and EPS, although it did see its losses go up. Overall, though, things are looking good.

And yet, the stock was hit in after-hours trading yesterday, dropping 4%, and it is down again in regular trading on Friday, losing 5.59%, or $9.01, to $152.21 a share.

So what exactly is the problem here? LinkedIn lowballed its guidance, and now it's paying the price.

In the earnings report, LinkedIn stated that it is expecteing Q2 2014 to see revenue between $500 and $505 million, with adjusted EBITDA expected to range between $118 million and $120 million.  For the full year 2014, revenue is expected to range between $2.06 billion and $2.08 billion. Adjusted EBITDA is expected to be between $505 and $510 million.

Both of those outlooks are below analyst expectations. They had been forecasting a $505.1 million Q2, and 2014 revenue of $2.11 billion.

Some analysts believe that the company is simply trying to temper expectations, which may have risen too high given that LinkedIn has come out ahead in every one of its earnings reports since going public in 2011.

"We believe that Street expectations were running too high, and that LNKD is trying to level set those expectations," CRT Capital said in a note.

If LinkedIn was trying to bring expectations back down to earth, it may have worked, as a slew of analyists have begun dropping their price targets, according to Analyst Ratings.

Morgan Stanley dropped LinkedIn from $250 to $240, while Wunderlich went from $280 to $250, Telsey Advisory Group went from $300 to $219 and FBR Capital Markets dropped the price from $190 to $141.

Q1 numbers

LinkedIn posted non-GAAP earnings per share of 45 cents on revenue of $473.2 million, an increase of 46% compared to $324.7 million in the first quarter of 2013. 

Analysts had been expecting EPS of 34 cents a share on revenue of $466.6 million. 

Net loss for the first quarter was $13.4 million, compared to net income of $22.6 million for the first quarter of 2013. Non-GAAP net income for the first quarter was $47.3 million, compared to $52.4 million for the first quarter of 2013.

Adjusted EBITDA for the first quarter was $116.7 million, or 25% of revenue, compared to $83.4 million for the first quarter of 2013, or 26% of revenue. 

These numbers also beat LinkedIn's own estimates which had been to see revenue in the range of $455 million and $460 million for the first quarter, while adjusted EBITDA was expected to range between $106 million and $108 million. 

Talent Solutions took in $275.9 million, up 50% year to year. This sector represented 58% of the company's quarterly revenue, compared to 57% a year ago.

Revenue from Marketing Solutions was $101.8 million during the quarter, an increase of 36% year to year. It accounted for 22% of total revenue, compared to 23% in Q1 2013. 

Meanwhile, Premium Subscriptions saw a big bump, bringing in $95.5 million, a 46% year to year increase. It totaled 20% of the company's revenue, the same as it did last year at this time. 

A total of $284.9 million, or 60% of LinkedIn’s revenue, came from the U.S., while $188.3 million, or 40%, came from international markets.

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