LinkedIn Earnings: Too Great of Expectations?

by Tom Taulli | July 31, 2013 10:21 am

LinkedIn Earnings: Too Great of Expectations?

While social media can be a volatile business, there seems to be no interruption to social star LinkedIn‘s (LNKD[1]) growth.

The company has beat Wall Street expectations for eight straight quarters and unsurprisingly, the result has been big-time gains for shareholders. So far this year, the stock has doubled.

Of course, that also means there is a sky-high bar for upcoming LinkedIn earnings. LinkedIn reports Thursday after the bell, and the consensus is for revenues to climb by 55% to $354 million and for earnings to nearly double to 31 cents a share.

Still, it’s important to consider that calling LinkedIn a social business — which is subject to the fickleness of users — is a bit misleading. InvestorPlace.com Editor Jeff Reeves recently wrote[2]:

“LinkedIn is reliant on professionals and corporate customers who are willing to pay a fee to participate in the LNKD ecosystem — either to find a job, to network or to seek professional development.”

In fact, the company has three core revenue streams. They include Talent Solutions (job postings and services for recruiting), Marketing Solutions (graphic and text display ads) and Premium Subscriptions (the fees for access to additional services on the LinkedIn website).

With that in mind, it seems LinkedIn has become the next-generation resume. In the first quarter, membership rose by 36% to 218 million, and about 64% are from outside the U.S.

Plus, LinkedIn is also about more than just career opportunities. Keep in mind that a popular use for the site is to find sales leads. To help things out, LinkedIn has recently launched Contacts, which allows users to integrate the service with email, address books and calendars. In other words, the company may be looking to grab a piece of the lucrative customer relationship management (CRM) business, which is dominated by Salesforce.com (CRM[3]).

For the cherry on top, LinkedIn continues to make heavy investments in mobile. The company recently launched a new version of its core app for Apple’s (AAPL[4]) iPhone and Google’s (GOOG[5]) Android. At the same time, LinkedIn acquired Pulse, which is a top mobile newsreader with over 30 million activations.

Still, the tough reality is that all these promising signs have already been built it to the stock’s price. In fact, stock’s price is a nose-bleed 98 times 2014 earnings.

With that in mind, even the slightest miss on earnings could send the stock tumbling. It’s probably a safe bet to wait until after the company reports before deciding to put your money in LinkedIn.

Tom Taulli runs the InvestorPlace blog IPO Playbook[6]. He is also the author of High-Profit IPO Strategies[7]All About Commodities[8] and All About Short Selling[9]. Follow him on Twitter at @ttaulli[10]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. LNKD: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNKD
  2. wrote: http://slant.investorplace.com/2013/07/linkedin-earnings-could-push-this-social-media-stock-higher/
  3. CRM: http://studio-5.financialcontent.com/investplace/quote?Symbol=CRM
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  6. IPO Playbook: http://investorplace.com/ipo-playbook/
  7. High-Profit IPO Strategies: http://goo.gl/TXQsz
  8. All About Commodities: http://goo.gl/FfP8R
  9. All About Short Selling: http://goo.gl/t5Jzb
  10. @ttaulli: https://twitter.com/ttaulli

Source URL: http://investorplace.com/2013/07/linkedins-earnings-expecting-perfection/
Short URL: http://invstplc.com/1nwW8lH