LinkedIn shares pulled back today, declining by 3.67% to $114.97 per share after analysts at Canaccord Genuity slashed their price target for the stock. They think the stock can rebound, but for now, investors are quite concerned about several factors following the social network’s troubling fourth quarter earnings report and guidance.
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In a report dated March 7, analyst Michael Graham said he slashed his price target for LinkedIn from $220 to $175 per share, although he remains Buy-rated on the stock. He said user growth decelerated to 8% in the fourth quarter, and there was a sequential decline in member page views, although he expects an improvement in the first quarter as management said on the earnings call that the relaunched flagship app is improving engagement.
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Among the factors he believes investors are concerned about are the implications of the emphasis on Talent Solutions and its shift to small- to medium-sized businesses. He also thinks investors are wondering whether there’s room for more upside to Sales Navigator and about when to expect operating leverage to make an appearance. Further, he thinks investors are concerned about whether LinkedIn’s stock will be able to work as the social network’s growth slows.
Talent Solutions this year and next
In the Talent Solutions segment, Graham said investors should focus on Recruiter 2.0 this year and small- to medium-sized businesses next year. He said the new Recruiter product should enable LinkedIn to gradually increase pricing for large enterprise customers. He also sees Referrals as potentially becoming an important add-on item. Although management was unsuccessful previously in creating new products for small- to medium-sized business customers, they also said they’re redoubling their efforts in this area as this is a place where “vast amounts of hiring happen.”
Graham sees plenty of room in the Marketing Solutions segment in terms of ad load and also sees the development of Sponsored Updates as sold even though there’s pressure from the discontinuation of the Lead Accelerator product and display ads. He said last year’s growth was about two-thirds volume and one-third price, and he sees more room to raise prices.
The analyst also thinks that the estimates for LinkedIn’s Sales Navigator are warranted despite their robustness because of the success that’s been seen in this area and also because of the potential for more big deals with big enterprise customers.