LinkedIn Corp (LNKD) Member Growth, Engagement Are Strengths

Sterne Agee analysts Arvind Bhatia and Brett Strauser rate LinkedIn Corp (NYSE:LNKD) as Neutral as they comment on solid 4Q13 results and its conservative 2014 guidance.

LinkedIn Corp (NYSE:LNKD) reported better-than-expected 4Q results but 2014 guidance was below consensus. We think guidance reflects a combination of increased investments in 2014, management’s normal conservatism and, the impact of the just announced acquisition of Bright. Key metrics including member growth, engagement and monetization remained strong. Reiterating Neutral on Valuation.

LinkedIn’s fourth quarter results

LinkedIn Corp (NYSE:LNKD) reported 4Q13 Revenue / Adjusted EBITDA / EPS of $447M / $111M / $0.39. This compares to consensus of $438M / $108M / $0.38, guidance of $415M-$420M / $98M-$100M, and SAL estimates of $439M / $110M / $0.36. The company grew its member base by 17.6M, reaching 276.8M versus our estimate of +20.1M additions. Talent Solutions (+53% Y/Y), Marketing Solutions (+36% Y/Y) and Premium Subscriptions (+48% Y/Y) all performed well. Management issued full-year guidance, but we believe they followed their traditional pattern of conservatism and there is likely upside. With ~277M members, LinkedIn has penetrated roughly 46% of its addressable market of 600M knowledge workers worldwide, according to company estimates. However, over time we believe the company will expand its addressable market by launching additional products to appeal to the broader global workforce of roughly 3.3B.

Guidance for 1Q14

1Q revenue / adjusted EBITDA guidance is below consensus: $455M to $460M / $106M to $108M versus consensus of $471M / $123M. Full-year revenue guidance of $2.02B to $2.05B compares to consensus of $2.17B. Adjusted EBITDA guidance for the full year of $490M compares to consensus of $576M. Management indicated that 2014 will be a heavy investment year as the company continues to focus on its key strategic initiatives. In addition, the acquisition of Bright will negatively impact EBITDA this year by $8M to $10M. Additionally, LinkedIn Corp (NYSE:LNKD) has a long track record of exceeding its guidance and we believe 2014 reflects that conservative approach of under-promising and over-delivering.

Adjusting estimates

We are maintaining our FY14 revenue estimate of $2.06B for LinkedIn Corp (NYSE:LNKD) but lowering our adjusted EBITDA estimate to $500M from $509M to reflect the acquisition of Bright. Also, we are maintaining our FY15 revenue estimate of $2.65B but reducing our adjusted EBITDA estimate to $626M from $647M.

LinkedIn acquires

LinkedIn Corp (NYSE:LNKD) announced that the company paid approximately $120M to acquire LinkedIn will leverage Bright’s data and technology to connect more job opportunities with job seekers. Bright is expected to improve the relevancy, volume and comprehensiveness of job offerings, especially as LinkedIn continues to attract users worldwide. From a financial perspective, Bright is expected to be drag of $8M to $10M for the full year 2014.

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