While many other social IPOs have faltered — such as Groupon (NASDAQ:GRPN), Pandora (NYSE:P) and Zynga (NASDAQ:ZNGA) — one has been a huge winner: LinkedIn (NYSE:LNKD). Then again, it has a clear business model, with three key revenue streams (recruiting, advertising and premium subscriptions). Consider that since coming public in May 2011, the shares are up about 179%.
When it comes to beating the Street estimates, LinkedIn has certainly been impeccable. But can it keep up its winning ways? It won’t be easy.
After the market closes today, LinkedIn will report its fourth-quarter results — and the Street has set a high bar. The consensus is for revenues of $280 million, up about 68% from the same period a year ago. Adjusted earnings is forecast at 19 cents a share, compared to 12 cents a share for the same period in 2011.
It’s certainly possible for LinkedIn to maintain its strong growth momentum. Consider that the company dominates professional networking, with over 200 million users. If anything, it’s redefining the concept of the “resume.”
More important, LinkedIn hasn’t rested. It continues to invest heavily in its business. For example, it has launched updated mobile apps and a notification feature. These should all help boost engagement and membership growth.
But perhaps the most interesting new offering is LinkedIn’s Sales Navigator, which helps salespeople find new customers and cultivate relationships. This could potentially become another lucrative revenue stream.
Yet there will be challenges. Sales Navigator will face intense competition, such as from Salesforce.com (NYSE:CRM). And it will take a while for the revenues to become a material part of the business.
At the same time, LinkedIn is facing growing competition to its core business. Facebook‘s (NASDAQ:FB) Graph Search could becomce a big threat. By allowing searches of people based on recommendations, this technology may become the basis of a powerful recruiting tool.
And then there’s LinkedIn’s outsize valuation, at about 96 times forward earnings. Even for a fast-growing company, that’s pretty hefty.
If LinkedIn shows some slippage — which is quite possible as it moves into new categories — the risks are certainly high. So, investors should avoid buying ahead of the earnings report, especially since the stock has already had a big run of 22% over the past three months.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
