RBC Capital Markets analysts Mark S. Mahaney and Andre Sequin upgrade LinkedIn Corp (NYSE:LNKD)’s rating from Neutral to Outperform and raise the price target to $250 from $225

LinkedIn

Underperformance In LinkedIn Shares Has Created An Opportunity

Over the past 6 months LinkedIn Corp (NYSE:LNKD) shares have traded down 13% vs. a 12% increase in the S&P 500. Drag Issues have included: 1) overly aggressive Street estimates, 2) a heavier than expected investment outlook for ’14, 3) a greater-than-expected slowdown in Talent Solutions revenue growth, and 4) uncertainty over Marketing Solutions format changes. The first issue has been addressed – Street ’14 EBITDA estimates have been reduced 11% since the beginning of this year. And we believe LinkedIn’s ’14 investments – salesforce buildouts, product and market expansions, and acquisitions – are coming from a position of strength against large TAMs. Our very recent proprietary work helps address Drag Issues 3 & 4. Hence, the Upgrade.

LinkedIn’s Strong Competitive Position

We very recently ran a survey of 260 U.S. hiring and recruiting professionals, using SurveyMonkey. Key Takes: 1) LinkedIn Customers Are Satisfied – 56% described themselves as “Completely,” “Extremely,” or “Very Satisfied,” with only 9% depicting themselves as “Slightly” or “Not Satisfied” – consistent with the prior two surveys; 2) LinkedIn Customers Are Generally More Satisfied Than Other Recruiter Customers – 53% of customers described LinkedIn Corp (NYSE:LNKD) as “Extremely” or “Very Useful” vs. 45% for Dice, 37% for CareerBuilder, and 31% for Monster; 3) Customers Plan To Maintain Or Increase Their LNKD Spend – 89% plan to maintain or increase their recruiting budget spend with LinkedIn over the next 12 months – consistent with the prior two surveys; & 4) LinkedIn Has Pricing Power – 77% & 79% of Recruiter and Job Postings customers described LinkedIn’s pricing as either “Competitive” or “A Premium, But Getting Better Results.”

Our Updated TAM Analysis Suggests Several Robust Market Opportunities

For each of LinkedIn Corp (NYSE:LNKD)’s three revenue segments, we created a bottoms-up market opportunity assessment. Our conclusion is that each segment faces at least a 5X revenue opportunity off of its 2013 base. We see the Talent Solutions segment as capable of generating $4.3B in revenue in 2020, assuming an 85,000 customer base (25% global penetration), and a 3% ARPU CAGR. We see the Marketing Solutions segment as capable of generating $1.95B in revenue by 2020, assuming 195MM Unique Visitors and $10 in Advertising ARPU (a discount to FB’s current level). And we see the Premium Subscriptions segment as capable of generating $3.5B in revenue by 2020, assuming 2% penetration of its Registered Member base and the maintaining of its current $21 ARPU.

Valuation

We have consistently referred to LinkedIn Corp (NYSE:LNKD) as a “buy-ondips” stock. Well…here’s the Dip and here’s the Buy. Our $250 PT is based on 40X our ’15 EBITDA estimate and 11X our ’15 Sales estimate.