3 Reasons LinkedIn Stock (LNKD) Is a ‘Buy’ After a Crummy May

LNKD stock price is down; now is the time to buy

During the month of May, LinkedIn (LNKD) stock fell 24%. The big decline came on May 1 after LNKD reported quarterly earnings. The first-quarter results marked the first time that LinkedIn missed analysts’ estimates since going public in 2011, which was a rather impressive run.

lnkd linkedin stockLinkedIn management’s disappointing outlook for the second quarter likely caused the stock to plummet.

LinkedIn management said that revenue for the second quarter would fall within a range from $670 million to $675 million while analysts had been expecting revenue of $718 million. Furthermore, LNKD cut its full-year revenue expectations from a range of $2.93-$2.95 billion down to $2.9 billion.

The main reason given for the weak first quarter and low second quarter forecast is that LinkedIn experienced slowing revenue in its main business of serving job recruiters. Management explained that it reorganized its sales force and experienced some account loss in the transition. With 39% of LNKD revenue coming from overseas, currency exchange also hurt growth.

While slowing growth and reduced forecasts are never good signs for a business, I believe the market overreacted and LinkedIn stock is worth much more than it’s currently trading for. This is exactly the situation Benjamin Graham was talking about when he famously said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

In the month of May, investors voted that LinkedIn stock was a loser, but I have three reasons why I believe LinkedIn stock will be voted much higher in the long run as the market realizes how much LNKD truly weighs.

LNKD Users Still Growing

With any growing internet company, the most important figures to look at are the number of users and how user counts are growing. In LinkedIn’s case, user figures look really good.

At the end of last quarter LNKD reported 364 million members or a 23% increase from the prior year. The number of unique visitors jumps 18% to 97 million per month on average.

Furthermore, member page views rose 30% over the past year, indicating that users are getting more active on the site. As an investor this is the most important figure. When user activity increases, it is a sign that the site has become a larger and more consistent part of users daily lives, which gives LinkedIn a wider moat and much stronger “staying power.”

LinkedIn’s Business is Sound

The user growth figures indicate that LNKD as a business is working, despite what happens to the LinkedIn stock. The one “weak” quarter in more than four years as a public company doesn’t undo the fact is LinkedIn’s business is sound.

The traditional internet advertising model, combined with subscription services for both job seekers and job fillers, gives LinkedIn a different, more stable long-term business model than traditional social media internet companies.

Furthermore LNKD is still experiencing growth, just not as much as it was previously, and LinkedIn is heavily reinvesting in itself, specifically the areas of research and development and human resources. The recent purchase of Lynda.com for $1.5 billion gives LNKD a top training company and another great offering to its clients, which its competitors don’t have.

LNKD has changed the way individuals search for jobs and married social media and the professional workplace together in a way that allows individuals to have a professional social media presence without the negative aspects.

LinkedIn Remains a Massive Market Opportunity

LNKD believes its full growth potential would be 3 billion users and a market capitalization of around $115 billion. Today, LinkedIn only has 364 million members and a market cap of $25 billion. Of the 364 million members, only roughly 107 million of them are within the U.S., and millennials will likely be the largest growth market for LNKD in the U.S. moving forward.

According to Wishpond Technologies, 92% of high school graduates (class of 2014) don’t use LinkedIn, and only 13% of millennials (ages 15-34) do. But 39 million college students and recent college graduates use LNKD.

Growth will not just come from the U.S. LinkedIn’s international market opportunities are also massive, and since 70% of LinkedIn users are already from outside the U.S., ramping up its user base around the world shouldn’t be a major hurdle.

Based on recent figures, LNKD still has a lot of room to grow in major international markets as its number of users in the U.K. currently stands at 17 million. Additionally, LinkedIn only has 6 million users in Australia, 28 million in India and only 8 million in all of China. Besides the U.K., all of those markets could see 10 times user growth and still have just scratched the surface.

Despite business growth slowing in the most recent quarter, LinkedIn apparently has not even begun to realize its full market potential both domestically and internationally. LNKD stock price and LinkedIn as a whole still have a long road ahead, but only investors with the foresight to see LinkedIn’s true potential will benefit from owning shares at today’s low price.

As of this writing, Matt Thalman was long LNKD. Follow him on Twitter@mthalman5513.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/3-reason-linkedin-stock-lnkd-buy-today-falling-21/.

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