LinkedIn (LNKD) has had a rough 12 months or so. LNKD stock is down roughly 25% from summer 2013 highs, and is deeply in the red year-to-date in 2014.
That means stakes are high for LinkedIn earnings, due out Thursday after the bell, as investors look either to validate the downtrend or see a turnaround in LNKD stock.
Here’s what to look for in LinkedIn earnings:
LNKD Needs Growth to Heat Up
The big reason for trouble for the social media stock has been concern that growth has plateaued. Sure, in its Q1 earnings report, LNKD stock boasted revenue growth of 46% to $473 million. However, the company’s full-year guidance expects growth of only 36% — down not just from this quarterly figure, but off sharply from revenue growth rates of 80% a few years back.
Equally troubling is that all that sales growth couldn’t result in any LinkedIn earnings, with LNKD posting a quarterly loss for Q1.
For the narrative to change regarding LNKD stock, earnings need to be strong this quarter.
The details are important, too, since the deceleration of growth has happened across the platform’s multiple revenue streams, which include recruitment services, advertising and premium subscriptions. Of particular concern is that recruiting revenues are about half of LinkedIn sales, but in Q1 the growth rate decelerated from 80% in 2013 to 50% this year.
Bulls will point out that 50% growth is nothing to sneeze at, but the slower expansion even as the job market has picked up momentum is not a good sign — particularly when expectations were so darn high for LNKD as the new way to network and find work in a digital age.
If any of these metrics are soft again, or even if these growth rates validate the disappointing trend of LinkedIn earnings, then expect investors to continue to look down at this social media stock.
There is a chance for a big beat and a pop, however. Just look at how Twitter (TWTR) is rallying strongly in the face of the naysayers.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.