LinkedIn Corp (LNKD) has never been a consistently profitable company, but that’s never seemed to matter as far as LinkedIn’s stock is concerned.
Since debuting on the New York Stock Exchange in May 2011 at $93, LNKD has more than doubled. In September 2013 it reached $253 a share, topping out at $269 in February 2015.
The year since hasn’t been kind, with the stock sagging back to $190 as of Wednesday, and dipping as low as $169 during the August market bottom.
So what’s changed for the world’s largest online social networking service designed specifically for working professionals?
Well, for starters, the market started to retreat. The 19% decline in LinkedIn stock over the past year is partly a byproduct of the 8% pullback in the S&P 500 over the same period. But LNKD’s struggles go deeper than that.
Sales Declines Catch Up to LinkedIn Stock
While sales are still growing at a healthy clip, they pale in comparison to the growth the company demonstrated as recently as two years ago.
In the third quarter, LinkedIn’s revenues reached a record $779 million, a 37% improvement from the year-ago quarter. It was the best year-over-year increase for LNKD since the fourth quarter of 2014.
However, it was just the second uptick in YoY sales growth in the last 10 quarters. In the second half of 2013, LinkedIn’s revenue growth was regularly in the 55% to 59% range. After failing to top 50% in 2014, LinkedIn hasn’t been able to top even 40% growth this year. Going back to 2011 and 2012, the first two years of public trading for LinkedIn stock, and the company grew sales at 115% and 86%, respectively.
That kind of sales growth can disguise a lot of warts — such as failing to consistently turn a profit. And on a per-share basis, LinkedIn’s earnings have actually been getting worse.
Through the first three quarters of 2015, LinkedIn lost $1.18 per share. In 2014, it lost just 13 cents, and in 2013 the company was actually in the black.
Why the decline? Last April, LNKD made its biggest acquisition ever when it bought out online education company Lynda.com for $1.5 billion — nearly 10 times more than its previous largest acquisition (Bizo, in 2014). LinkedIn has also devoted a lot of dollars to improving its mobile segment, launching applications for use on Apple (AAPL) iPhones and Alphabet’s (GOOG, GOOGL) Android smartphones.
So the current earnings pains could be temporary, especially once the Lynda.com purchase starts to kick in more. Thursday’s earnings report should tell us if that’s the case.
Regardless, with net income and EPS in the red in six of the last seven quarters, LNKD needs to reverse that trend quickly to prevent its profitability issue from becoming a long-term problem. Its sales are not growing rapidly enough to mask the inconsistent bottom-line growth, and LinkedIn stock can no longer get by on being the hip new social media stock on the Wall Street block. That shine has worn off.
Thursday’s earnings report could tell us a lot about which direction LinkedIn stock is headed.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
