Bull of the Day: LinkedIn Corp Looks to Break Out (LNKD)

Rising bottom line estimates drive LNKD stock price upside

Founded in 2003 and headquartered in Mountain View, CA, LinkedIn Corp (LNKD) is a leader in online professional networking. With more than 450 million members worldwide, the company is the world’s largest online professional network.

Bull of the Day: LinkedIn Corp Looks to Break Out (LNKD)LinkedIn has a diversified business model with Talent Solutions, Marketing Solutions, and Premium Subscriptions products operating segments.

LinkedIn’s Strong Q2 Revenue Results Shine

LinkedIn reported better-than-expected results for the second quarter of 2016, with strong year-over-year growth in both the top and the bottom lines.

Revenues surged 31% to $932.7 million, from $711.7 million, driven mainly by 35% increase in revenues at Talent Solutions to $597 million. However, the loss increased to 89 cents per share, from 53 per share, on a GAAP basis, mainly due to a $101 million expense related to tax assets.

Adjusted earnings (including stock-based compensation) came in at 6 cents per share, significantly better than the Zacks Consensus Estimate for a loss of 6 per share and the loss of 30 cents per share recorded a  year-ago .

The company did not provide any updated guidance in view of its pending merger with Microsoft Corporation (MSFT).

LinkedIn’s Rising EPS Estimates 

Analysts have raised their estimates for the company after strong results. Zacks Consensus Estimates for the current and next year have surged to $1.01 per share and $1.68 per share, from 35 cents per share and 83 cents per share before the results.

Microsoft to Acquire LinkedIn; Salesforce Tries to Block the Deal

In June, Microsoft reported an agreement to acquire LinkedIn for $26.2 billion or $196 per share. Microsoft expects that the deal will result in new opportunities for their Office suite. This would be Microsoft’s largest acquisition ever. The merger is expected to be completed in the fourth quarter subject to shareholder and regulatory approval.

Salesforce.com, Inc. (CRM) which had also tried to acquire LinkedIn and was outbid by Microsoft, is pushing regulators to block the deal, arguing it would hurt completion.

It is reported that competition with Salesforce forced Microsoft to raise its bid significantly.

The Bottom-Line on LNKD Stock: Take a Hard Look at Growth Opportunities  

LinkedIn continues to invest in improving its products and services, which could hurt profits in the shorter term, but these investments will drive member growth and user engagement over the longer term. The stock is not cheap, but it is worth a look due to its excellent growth potential.

Now, which stocks should you sell?

As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

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