LinkedIn Corp: LNKD Stock Is Down, But Certainly Not Out

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LinkedIn Corp (LNKD) has been stuck in a rough downtrend ever since reporting a disappointing third-quarter earnings report back in July 2015. The fourth-quarter report in February of this year was even worse, and LNKD lost about half of its market value in less than one day after the call.

LinkedIn Corp: LNKD Stock Is Down, But Certianly Not Out

Shares were also pressured last week after Business Insider reported a hacker known as “Peace” is allegedly selling account information from 117 million LinkedIn users.

The road to profitability has been a rocky one for LinkedIn stock, but I’m still optimistic about a bright future for the company and the opportunity it presents right now.

First-quarter earnings reported on April 28, sent the stock soaring, and I not only believe LNKD will be the leading tool for professionals seeking employment, but will also be ubiquitous as major corporations seek to build sales and recruit talent.

Growth will be driven by the company’s fundamentals, so let’s take a look at what makes the company tick. LNKD has three different operating segments: Talent Solutions (65% of revenues), Marketing Solutions (18%) and Premium Subscriptions (17%).

These three segments have fed LNKD’s considerable growth in recent years, with revenues increasing from $522 million in 2011 to a massive $2.991 billion in 2015 — a 54.7% gain per year.

But during the company’s February earnings release, future expansion was questioned when management gave disappointing revenue guidance for 2016 of $3.65 to $3.7 billion versus expectations of $3.9 billion.

Earnings expectations of $3.05 to $3.20 a share were also well short of the estimated $3.67 a share. This was a significant adjustment at a time when the stock was priced for perfection, leading to the 44% decline in LinkedIn stock the next day.

But while guidance was disappointing, nowhere was it implied that the company would stop growing. All investors needed was some reassurance that LNKD was not stalling out, and that’s what management provided in their first-quarter earnings report.

LinkedIn Stock’s (LNKD) Staying Power

First-quarter revenues increased 35% to $861 million, with growth across all product lines. Talent Solutions revenues were up 41%, as Hiring Solutions jumped 27%, with Lynda.com contributing $55 million to the bottom line.

Market Solutions revenues also grew 29% to $154 million, as the company benefited from a concentration on sponsored content, and Premium Subscription revenues climbed 22% to $149 million. And despite heavy investments in product development and sales and marketing, earnings per share still grew 30% from $0.57 to $0.74.

Gains in engagement greatly contributed to this success. Total members in the quarter were up 19% to 433 million — the company’s strongest gain since the first quarter of 2014. Total page views increased 34%, with total page views per visiting member up 23% to an all-time high. With a growing and increasingly active membership base, LNKD is set up well for future expansion.

Management is pushing all the right buttons now: investing and innovating in their core businesses, and selectively seeking new areas for expansion, while not being afraid to discard ideas that are not working. I think we’ll see LinkedIn move higher over the longer-term as management executes these strategies.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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