At first, it feels like dejá vu: For the second time in two days, a social media company fell after releasing earnings after the close. Thursday, it was Twitter (TWTR). This time around, it’s LinkedIn (LNKD) that is in the hot seat after guiding below the Street forecast for Q1 sales and FY 2014 sales.
Is it time to log off of LNKD? Let’s find out.
Let’s start with what sparked the selloff. The company projects revenues in a range of $445 million to $460 million for the first quarter and between $2.02 billion to $2.05 billion for 2014. Analysts had expected $470.3 million in first-quarter sales and $2.16 billion in full-year sales. LinkedIn has a history of trouncing expectations, so this surprised Wall Street to say the least.
But I consider this a knee-jerk reaction to an otherwise strong report. Let’s dig into the details of the fourth-quarter earnings report. Compared with the year ago period, revenues jumped 47% to $447 million, beating the $437.84 million consensus estimate by 2%. LinkedIn posted net income of $3.8 million, or 3 cents per share. Excluding special items, adjusted earnings jumped 20% year-on-year to $48 million, or 39 cents per share, topping the 38 cents per share consensus EPS estimate by a penny.
The company also announced that it is acquiring Bright for $120 million. What’s special about Bright is that this company employs revolutionary matching technology to connect job seekers and employers. This acquisition, which is due to close this quarter, will undoubtedly enhance LinkedIn’s value as a networking platform. Another plus in LinkedIn’s favor is that it has been working double time to increase its mobile presence. 41% of traffic now comes from mobile devices, up from 8% three years ago.
As LinkedIn grows larger, it’s reaching a point in its business cycle where sales are starting to slow down a little from the breakneck pace that we had seen in prior quarters. This has caused some investors to sell first (and think later), but this is still the strongest social media stock to own in my book.
If you’re an ultra-conservative investor and if you’re feeling nervous, you could continue holding LinkedIn stock or even trim your position–just be sure to wait to sell into strength.
But for those of you who don’t mind holding a “spicier” stock or two, I consider LinkedIn stock a B-rated buy. Just be advised that this is a more aggressive position so please diversify accordingly.