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.
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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.