LinkedIn’s (NYSE:LNKD) first quarterly report as a public company shows that the social networking industry continues to be red-hot. The company, which allows people to create profiles to find jobs and business opportunities, posted a 120% increase in revenue to $121 million and surprised Wall Street by posting a profit of $4.5 million.
LinkedIn’s outlook also was robust, calling for full-year revenue of $475 million to $485 million.
The company certainly has strong competitive advantages, especially with its massive 116 million subscriber base (there was a 61% increase over the past year), and it has been aggressive in launching innovative products. Keep in mind that it has three core revenue streams, which include premium subscriptions, hiring services and marketing.
Despite the performance, shares of LinkedIn were off 6% as the broader market headed for another down day in Friday’s early trading.
But there are other company-specific concerns as well. First of all, LinkedIn is selling at a hefty valuation — a whopping 30 times revenue.
Interestingly enough, there are a variety of Wall Street firms that have price targets that are lower than LinkedIn’s current stock price Evercore Partners has one of $70, while JPMorgan has slapped an $85 price target on the stock.
It also appears the global economy is slowing down, which will inevitably hit the growth ramp for LinkedIn. On its conference call, the company admitted its top line would suffer from a double-dip recession.
Finally, there is the concern about the company’s IPO lock-up period, which will expire in November, allowing LinkedIn’s employees to sell their stock. That could result in lots of pressure on the stock.
So even if LinkedIn can continue to grow at a hefty rate – which is far from certain — it is probably best to wait on buying shares for now.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
