LinkedIn Corp (NYSE:LNKD) is expected to release its earnings reports on May 01, after market close. As we all know, a positive earnings surprise, revenues and earnings growth trend, and a positive management outlook are the main catalyst for a company’s stock price appreciation in the short term. So, what should we expect from LinkedIn earnings report? First, let’s see what the analysts’ consensus is.
LinkedIn Corp (NYSE:LNKD) is expected to post a profit of $0.34 a share, a $0.11 (24.4%) decline from the company’s actual earnings for the same quarter a year ago. This figure is the average of 33 analysts’ estimates, while the lowest estimate is for a profit of $0.23 a share and the highest is for a profit of $0.45 a share. As for the rating, analysts’ opinion is divided. Among the 37 analysts covering the stock, seven rate it as a strong buy, eighteen rate it as a buy and twelve analysts rate it as a hold.
However, according to TipRanks, a website which ranks analysts according to their performance, analysts are wrong 50.2% of the time, and if we accept this figure, the conclusion is that an investor who relies on the consensus will receive a wrong recommendation in about half of the cases. An investor can do much better by considering only the recommendations of analysts with a top ranking, according to the accuracy of their previous calls. According to TipRanks, among the nineteen 5-star analysts covering LinkedIn Corp (NYSE:LNKD) stock, 13 of them are recommending the stock.
On February 26, RBC Capital’s 5-Star analyst Mark Mahaney upgraded LinkedIn Corp (NYSE:LNKD) stock to “outperform” from “sector perform”, and he raised its price target for the social network company to $250 from $225. Mahaney said the upgrade is a value call as the company’s stock fell 13% over the past six months. “Over the past 6 months LinkedIn shares have traded down 13% vs. a 12% increase in the S&P 500. Drag Issues have included: 1) overly aggressive Street estimates, 2) a heavier than expected investment outlook for ’14, 3) a greater-than-expected slowdown in Talent Solutions revenue growth, and 4) uncertainty over Marketing Solutions format changes,” Mahaney wrote. Mr. Mahaney got his 5-Star rating after succeeding in 83 of his 140 recommendations, and getting a one year average return of 11.9%.
On February 07, Credit Suisse’s 5-Star analyst Stephen Ju reiterated an Outperform rating, and cut his price target to $274 from $288. Mr. Ju explained: “Our Outperform rating for LinkedIn Corp (NYSE:LNKD) shares continues to be predicated on three key points: LinkedIn’s current roster of a little over 24,000 corporate solutions clients implies a minority penetration rate for Talent Solutions on a global base of ~745k addressable businesses that have more than 100 employees; The company’s all-you-can-eat subscription model undercharges enterprise customers and longer-term LinkedIn can potentially price on a more lucrative per-lead transactional basis; Over the longer term LinkedIn can leverage its unique data set to place the right ad in front of the right user at the right time, driving ad inventory pricing higher.” Mr. Ju succeeding in 16 of his past 29 recommendations, and getting an impressive one year average return of 33.4%.
There is a good chance that LinkedIn will post a positive earnings surprise in its first-quarter earnings release on May 01. After all, LinkedIn has posted a positive earnings surprise in every quarter last year. In its first-quarter of 2013, LinkedIn beat EPS expectations by $0.14 (45.20%), in the second-quarter, it beat EPS expectations by $0.07 (22.60%), in the third-quarter it beat expectations by $0.07 (21.90%), and in the fourth-quarter it beat expectations by $0.01 (2.60%). In case that LinkedIn will beat analysts’ expectations also in 1Q14, we can expect a surge in its stock price, since the stock is now down almost 40% from its 52 weeks high.
Other social network companies have also suffered a big decline in their stock price; Facebook Inc (NASDAQ:FB) is down about 20% from its 52 weeks high, and Twitter Inc (NYSE:TWTR) is down almost 45% from its 52 weeks high. Since social network stocks are quite expensive considering valuation metrics, therefore, a strong growth is expected from these companies. Facebook announced its latest quarter report on April 23, beating Street estimates by 29.6% and showing a 71.6% revenue growth and a 177.8 EPS growth from the same quarter a year ago. Twitter will report quarterly earnings after the close on April 29.
After examining top analysts’ recommendation, and considering the history of positive earnings surprises of the company, and the big decline of its stock price, investors can expect a rise in LinkedIn Corp (NYSE:LNKD) stock price in the near future.