LinkedIn Corp (LNKD) is set to report earnings after the bell on Thursday, and given what happened to LNKD stock last time the company reported earnings, investor’s concerns are definitely valid.
For those of you who’ve tried to forget what happened nearly three months ago, I apologize, but we need to give some context: After its fourth-quarter earnings report on Feb. 4, LNKD stock plunged 44% in a single day as Wall Street sold off shares of the professional social network in droves.
It was an absolute bloodbath, and shareholders would much prefer that it never happened again.
Sure, it’s unlikely that a 44% post-earnings haircut will plague LinkedIn stock in back-to-back quarters, but there certainly aren’t any guarantees in the stock market; if the performance of tech stocks this earnings season is any indication, the deck may be stacked against LNKD yet again this quarter.
LNKD Stock: The Tech Earnings Graveyard Awaits
Dismal tech earnings were abundant over the past two weeks, with Alphabet Inc (GOOG, GOOGL), Microsoft Corporation (MSFT), International Business Machines Corp. (IBM), and most importantly, Twitter Inc (TWTR), each plunging after wildly disappointing quarterly reports.
TWTR stock was the worst hit, cratering 15% after whiffing on revenues, giving horrendous guidance and reporting almost stagnant user growth once again.
Twitter is by far the most similar of those tech companies to LinkedIn, though admittedly the two companies are still quite different. One issue Twitter mentioned in its report, however, could very well be a bad omen for LNKD stock and its Q1 report.
Twitter blamed its revenue miss on “slower than expected growth in brand advertising spend.” When LinkedIn slashed its full-year revenue guidance last quarter (the primary catalyst that sent shares south), it cited the shuttering of its Lead Accelerator business, which aided marketers’ ability to target potential customers.
Could it be that brands, marketers and advertisers are increasingly choosing the tried-and-true Facebook Inc (FB) platform over the stagnant and spammy Twitter and LinkedIn platforms? I’ve heard crazier theories.
Aside from the treacherous tech landscape right now, there are a few more warning signs that don’t bode well for LNKD stock.
Firstly, while not entirely unusual, Q1 Wall Street earnings and revenue expectations are above what LinkedIn itself guided for. The company forecast first-quarter adjusted earnings per share of 55 cents on $820 million in revenue. Analysts, on the other hand, expect LNKD to report EPS of 60 cents on revenue of $828.47 million.
It’s not unusual for companies to issue conservative guidance, so this might not be a big deal, but still … are you comfortable giving LNKD the benefit of the doubt here?
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Additionally, firms like Evercore and MKM have noted that margins are under pressure and job postings on LinkedIn may decline for the first time ever in the first quarter.
Arguably even more worrisome is the current valuation of LNKD stock: shares still trade at 28 times forward earnings, despite the laundry list of concerns surrounding it. When you look at it that way, it’s easy to understand why LinkedIn shares are down 3% on Wednesday.
I would certainly err on the side of caution if I were trading LinkedIn shares before earnings; the options market seems to be projecting a 6% to 7% swing after the report. If you don’t want to get burnt, join me on the sidelines.
You’ll miss out on some short-term gains if it pops, but with many also on the fence regarding LinkedIn’s long-term vision, the sidelines ain’t a bad place to be.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
