LinkedIn Corp (NYSE:LNKD) shares have declined more than 7% this year so far. Fund flows suggest that the large institutional investors are pulling out of LinkedIn, and pouring money into Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR). The Arora Report analyzed eight key factors of the stock including fund flows, income streams, current quarter guidance, technical perspective, Q4 earnings, engagement issues, traditional fundamental ratios and competition. The Arora Report says that the stock can easily slip in both directions.
Technical indicators don’t favor LinkedIn
But the technical perspective shows that LinkedIn Corp (NYSE:LNKD) should continue to go downward. For the past several months, price action has been capped by a downward slope. Volume rises on bad news much more than it does on good news. When a popular stock witnesses a downward trend for 3-5 months in a bull market, its relative-strength index (RSI) begins to diverge from the price action. The RSI divergence is an early sign of a potential turnaround. But LinkedIn is showing no such divergence.
The Mountain View-based professional networking service has a distinct advantage over other social networks like Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB). While other networks depend heavily on advertising for their revenues, LinkedIn Corp (NYSE:LNKD) has three distinct revenue streams: Talent Solutions, Marketing Solutions and Premium Subscriptions. During the fourth quarter, LinkedIn’s Talent Solutions revenues surged 53% to $245.6 million, Marketing Solutions revenues jumped 36% to $113.5 million, while revenues from Premium Subscriptions grew 48% to $88.1 million.
China represents a huge opportunity for LinkedIn
The company’s U.S. growth has begun to saturate. In Q4, 2012, U.S. accounted for 62% of its total revenue, which fell to 61% in Q4, 2013. LinkedIn Corp (NYSE:LNKD) is focusing on international expansion. The company has launched its Chinese language edition with the name “Lingying.” China is estimated to have more than 140 million professionals. That represents a huge opportunity for a company with 277 million worldwide users. The Arora Report says that LinkedIn can easily generate more than 15% of its revenues from China. But dealing with China’s regulatory issues and censorship won’t be smooth sailing.
LinkedIn Corp (NYSE:LNKD)’s business model has engagement issues. Users don’t have a good reason to access the site regularly when they are not looking for jobs. The company has tried to resolve that issue by making its website an open publishing platform. LinkedIn is a must-go-to place for any professional in the U.S. planning to switch jobs. Many other businesses have tried to rival LinkedIn, but they have failed. There have been rumors that Facebook Inc (NASDAQ:FB) is working on a jobs feature that could be a serious threat to LinkedIn.
LinkedIn Corp (NYSE:LNKD) shares plunged 1.27% on Monday to close at $201.45.
