FBN analyst Shebly Seyrafi reiterates an Outperform rating for LinkedIn, but lowers the price target as the company guides for lower EBITDA.
Reiterate Outperform/lowering PT to $250
We reiterate our Outperform rating on LinkedIn Corp (NYSE:LNKD) but lower our PT from $275 to $250. LinkedIn Corp (NYSE:LNKD) reported a nice revenue/EPS beat, but it is guiding FQ1 and F2014 results to be below consensus, and is guiding for Adjusted EBITDA margin to decline in F2014 to ~24.1% from 24.6% in F2013 (we had modeled Adjusted EBITDA margin to increase further to 27.8% in F2014). Too, Page Views growth decelerated to only 20% (from 30% in FQ3) partly due to a difficult compare. Still, there were several positives in the report: 1.) Talent Solutions continues to grow well (up 53% Y/Y) with international now about 30% of this segment, 2.) Marketing Solutions grew a strong 36% Y/Y (above consensus), and 3.) Member growth (37%) remains strong and beat consensus.
EBITDA guided to decline due to heavy investments
The guided decline in EBITDA in FQ1 and in F2014 is due to the heavy investment that LinkedIn Corp (NYSE:LNKD) will undertake in F2014. These investments include 1.) China (where LNKD just hired Derek Shen as its first China president); 2.) more investment in its LinkedIn Jobs (~25% of Talent Solutions revenue) as LinkedIn Corp (NYSE:LNKD) also invests in Bright, a company which LinkedIn Corp (NYSE:LNKD) just agreed to acquire for $120M (73% in stock, 27% in cash; deal expected to close in FQ1 2014); Bright uses data-driven matching technology to connect prospects and employers; 3.) more field sales investment (note that LNKD has been growing its field sales, which were 61% of revenue, up from 59% the year before); 4.) Sales solutions (e.g. Sales Navigator); we expect LNKD to make additional investments in both the sales product and in headcount for this division; and 5.) additional investment in data center and facilities (LNKD built a data center in F2013 and expects to build one more in 2014 and another one in 2015).
LinkedIn FQ4 results
For the FQ4 quarter, LinkedIn Corp (NYSE:LNKD) reported revenue of $447.2M (+47% Y/Y and above consensus of $438.3M) and NG EPS of $.39 (above consensus of $.38). Adjusted EBITDA of $111.4M (24.9% margin) was ahead of the $107.6M consensus. As the table below shows, Talent Solutions revenue grew well (53% Y/Y) but was still $1.5M below consensus, while Marketing Solutions (advertising) revenue grew 36% and was $10M above consensus (this is consistent with online advertising strength seen at Google Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB), and others). Premium Subscriptions revenue grew 48% and was in line with expectations.
Total members of 277M (up 37% Y/Y) slightly exceeded the 274M consensus.
FQ1 guidance. For the FQ1 quarter, LinkedIn Corp (NYSE:LNKD) is guiding for revenue of $455-460M (+41% Y/Y at the midpoint and below consensus of $470.4M, which would have been growth of 45%), Adjusted EBITDA of $106-$108M (below consensus of 122.7M), D&A of $48M, and ESO of $68M.
F2014 guidance. For F2014, LinkedIn Corp (NYSE:LNKD) is guiding for revenue of $2.02-$2.05B (+33% at the midpoint and below consensus of $2.16B, which would have been growth of 41%), Adjusted EBITDA of $490M, D&A of $225M, and ESO of $325M. Using the midpoint of the revenue range, this results in an Adjusted EBITDA margin of~$490/$2.035B = 24.1%, below our prior 27.8% estimate and 24.6% in F2013.
