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Today is a big day for social media, now that word is out that online video advertising is expected to double to $8.1 billion by 2016. But while competitor Twitter (TWTR) took flight on the news, LinkedIn (LNKD) stock remains in the red.
What is weighing on LNKD shareholders? Is this a buying opportunity? Find out today.
LinkedIn is a social networking website that contends with the likes of Facebook (FB) and Twitter by catering to professionals looking to advance their careers. But while LinkedIn competes with Facebook and Twitter for user attention, its business is quite different—as career and job markets become increasingly Internet-based, LinkedIn’s services will become even more useful.
For example, many companies are offering applicants the opportunity to simply upload their LinkedIn data to a hiring application to save time. With over 225 million users in more than 200 countries, LinkedIn brought in $972 million in FY 2012.
What sent LNKD shares lower was that a Citigroup (C) analyst cautioned that the number of job postings on LinkedIn grew more slowly in the fourth quarter than in the third quarter. The analyst, Mark May, believes that LinkedIn will at best match the consensus sales estimate for hiring solutions revenue. Investors reacted to these remarks but it’s clear that much of the analyst community disagrees with May.
Currently, the consensus estimate is that LinkedIn will earn 32 cents per share on $384.17 million in total sales for the fourth quarter. This represents 45.5% annual earnings growth and 52.4% sales growth. So all eyes will be on the social media giant when it reports earnings later this month.
In any event, I’m considering LNKD a great long-term position. Looking ahead to FY 2014, analysts forecast 41.6% annual earnings growth and 41.2% sales growth. In just the past week, the analyst community has revised both this year’s and next year’s consensus EPS estimates up 5% and 4% respectively. And this is head and shoulders above the competition.
The rest of the Internet Information Providers industry is headed towards an average of 25.9% earnings growth for FY 2014. Then again, a recent Pew Research Center study said as much, as 22% of its participants replied that they use LinkedIn, vs. 21% for Pinterest and 18% for Twitter.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For the past 12 months LNKD has stayed in buy territory. That’s because this company has solid fundamentals. LinkedIn has figured out how to maximize sales growth, operating margin growth, as well as how to top analyst estimates consistently.
Of the eight fundamental metrics I graded this stock on, LNKD receives A- or B-ratings on four. The exceptions are cash flow (C-rated) and return on equity (D-rated), and earnings growth, but I imagine these will firm up in the company’s next earnings announcement. So LNKD receives a C for its Fundamental Grade.
Meanwhile, institutional buying pressure (as indicated by its B-rated Quantitative Grade) remains strong.
Bottom Line: As of this posting I consider LNKD a B-rated Buy.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!