LinkedIn Corp (NYSE:LNKD) beat expectations in last night’s earnings report, but the social network’s shares tanked on management’s exceptionally weak guidance. It should be noted that this company usually guides conservatively, making last night’s beats no big deal. However, by the same token, the outlook was so weak that even with management’s typical conservatism, clearly they do not expect a good year.
LinkedIn tumbles as investors exit en masse
Shares of LinkedIn plummeted, shaving as much as 39.77% of their previous value to bring them to $116.22 per share in exceptionally heavy trading as investors unloaded the stock like it was deadly poison. By 10:08 a.m. Eastern, already more than 9.3 million shares had changed hands, compared to the average daily volume of about 1.75 million shares.
Khrom Capital was up 32.5% gross and 24.5% net for the first quarter, outperforming the Russell 2000's 21.2% gain and the S&P 500's 6.2% increase. The fund has an annualized return of 21.6% gross and 16.5% net since inception. The total gross return since inception is 1,194%. Q1 2021 hedge fund letters, conferences and more Read More
LinkedIn posted revenue of $862 million, compared to the guide of $848 at the midpoint, adjusted EBITDA of $249, versus the guide of $210 million, and non-GAAP earnings of 94 cents per share against Wall Street’s estimate of 78 cents. Management guided for non-GAAP earnings of 55 cents per share, revenue of $820 million, and EBITDA of $190 million, compared to the consensus estimates of $868 million, $214 million, and 75 cents per share, respectively.
Talent Solutions revenue climbed 45% to $535 million, beating Wall Street’s estimated $529 million, while Premium Subscriptions revenue increased 10% to $144 million, edging out the consensus of $145 million.
LinkedIn announces surprise structural change
Analysts didn’t help the virtual bloodbath either as most firms slashed their price targets for the stock, some by $100 or more. Jefferies analysts Brian Pitz and Brian Fitzgerald cut their target from $310 all the way down to $180 per shares. They noted that even though investors weren’t expecting it, LinkedIn said it will close down its Business to Business Lead Accelerated product, which previously had been considered “a long ramp/high growth opportunity,” they said. Management cited a “higher than anticipated demand on resources” as the reason for the wind-down.”
Management also warned about pressure on the Talent Solutions business this year as a result of macro issues, particularly in the APAC and EMEA regions. They also expect LinkedIn’s online, self-serve products to witness slowing growth, although they believe the Sponsored Updates and Sales Navigator products will be shielded from the worst of the damage.
Where LinkedIn’s problems lie
Credit Suisse analyst Stephen Ju slashed his price target for LinkedIn from $330 to $230 per share, highlighting that he thinks “cross currents” in the Marketing Solutions and Talent Solutions businesses are to blame for most of the headwinds management expects.
Among the contributing factors for the Marketing Solutions business are the Bizo closure, which he estimates to have a $50 million impact and; Premium Display deterioration, which he also pegs at a $50 million impact. He believes Talent Solutions will be hit by currency headwinds and macro headwinds in the EMEA and APAC regions, plus a slowdown in online signups, all of which he estimates at a $100 million impact.
Still room for upside
Macquarie Research analysts Tom White and Mack Hueber trimmed their target from $260 to $225, saying that they still believe LinkedIn management is being a bit conservative with “pockets of possible upside” even with the exceptionally weak guide. For example, they said the guide doesn’t include Referrals or Recruiter revenues as both products are new or benefits from continuing member engagement acceleration, which was seen last month after the launch of Voyager. However, they add that the social network’s reputation as a “steady executor” is taking even more damage as Wall Street was disappointed in three of the last fourth quarters.
They understand why the company is exiting Bizo as a stand-alone business only 17 months after acquiring it, however. It will be merged into the Sponsored Updates product in some areas, and in the long term, they said scaling it would be “personnel-intensive and for questionable ultimate profitability.”
Another bad item in last night’s earnings report is that the social network will stop disclosing its enterprise customer numbers, and once again, the Macquarie team understands this and notes that management had already mentioned the possibility.
Other price target cuts
Although most analysts remain Buy-rated (or the equivalent) on LinkedIn, most really couldn’t leave their price targets intact with the nosedive that’s happening today in the social network’s shares. Among the other firms that slashed their targets is Goldman Sachs, which lowered its target from $280 to $200 per share.
Nomura analyst Anthony DiClemente cut his target from $235 to $180, while Wedbush analysts trimmed their target from $232 to $200 and Pacific Crest Securities analysts cut their target from $280 to $190. Indeed, after last night’s earnings report LinkedIn seems destined not to be an investor favorite this year as some firms had hoped.