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LinkedIn Corp Coverage Initiated At ‘Buy’: Nomura

LinkedIn shares started to move higher this morning following a coverage initiation report from analysts at Nomura. They see lots of opportunities for growth through the social network’s various offerings and believe that it can close the valuation gap between its internet peers. As of this writing, LinkedIn shares were up 1.2% at $242.32 per share.

LinkedIn’s scale provides solid user base

Nomura analysts Anthony DiClemente and Lee Horowitz have initiated coverage of LinkedIn wth a Buy rating and $290 per share price target. Their estimates for the social network are above consensus as they expect acceleration of its revamped product line to increase and penetration to rise among “smaller” enterprise customers.

LinkedIn currently has about 400 million members, and they believe the firm can leverage this “scale advantage” in its three major segments: Hiring Solutions, Marketing Solutions, and Learning and Development. Here’s a look at how the social network’s revenue contributions break down:

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High expectations for Hiring Solutions

In LinkedIn’s third quarter earnings report, there were already signs of an inflection in revenue growth for the social network’s Hiring Solutions business, marking the first acceleration of revenue for the segment in five years, notes DiClemente and Horowitz. They see the possibility for a longer growth runway than what investors might be factoring in currently.

Other benefits for the segment include the upcoming refresh of the Recruiter product in the first quarter, increased penetration of the small- to medium-sized business market, and upselling to Media and Jobs products. The Nomura team expects all of these benefits to support revenue growth of more than 25% for the segment in the years ahead.

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Near term growth expected for Learning and Development segment

They added that they currently see “low-hanging fruit” in LinkedIn’s Learning and Development business to drive growth here as well. The social network has plans to leverage premium content from Lynda to further monetize its customer base and reaccelerate the product’s revenue growth. They believe this will continue because of synergies between the premium content and the company’s enterprise customers and professional user scale.

Here’s a look at their growth expectations for the Learning and Development segment:

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Improving monetization of Marketing Solutions

LinkedIn recently released an upgraded version of its flagship app, and DiClemente and Horowitz are optimistic about the social network’s ability to rejuvenate its advertising business. They noted that engagement continues to improve, driving momentum for the Sponsored Updates product, which has so far this year grown by more than 100%.

The Nomura analysts note that investors remain skeptical about LinkedIn’s engagement trends, but they “sense” that management has renewed their focus on this area. Here’s a look at their expectations for engagement growth over the coming year.

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Further, they believe that monetization for the Marketing Solutions business is still in the early stations and that the renewed focus in this area has come down all the way from the top as CEO Jeff Weiner because the social network’s product head last year.

Upside to LinkedIn’s valuation

They conclude by saying they see upside to LinkedIn’s valuation as it has underperformed its internet peers so far this year. Their $290 per share price target for the social network is based on their expectations that it will be able to close the gap in valuation between itself and Facebook, Netflix and Google.

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All graphs and charts in this article are courtesy Nomura.