LinkedIn a ‘Buy’ Based on 45x 2013E EBITDA – Citi

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LinkedIn a 'Buy' Based on 45x 2013E EBITDA -  Citi

On Tuesday, Citigroup Inc. (NYSE:C) upgraded its rating on Linkedin Corporation (NYSE:LNKD) to a “Buy” with a $125 price target.

In the research note by lead analyst Mark Maheney, his team believed that LinkedIn is one of the stronger assets in the 2011-2012 IPO class. Along with a pullback for the stock, which has a 25 percent-plus upside with a $125 price target, there are three reasons for the upgrade.

LinkedIn Has Demonstrated Strong Execution

In its four quarters as a public company (and several years in existence), LinkedIn had produced constant and impressive results: seven consecutive quarters of 100 percent-plus revenue growth, eight consistent quarters of more than 100 percent plus corporate customer growth and near 20 percent EBITDA margins for two years.

The company’s end-markets penetration has stayed low: $900 million in 2012 revenue versus a $300 billion global staffing marketplace.

Survey Shows Increased Customer Satisfaction 

During the March Quarter, Maheney and his analysts again ran their HR professional survey across 100-plus companies; the first LinkedIn survey had taken place in August 2011. The results showed a trend of increased use for LinkedIn by recruiters; there was also additional spending by this group and higher satisfaction levels.

A vital point of the survey: the percentage of survey respondents planning to increase spending with LinkedIn was 20 percent in the middle of 2011, up to 69 percent in the first quarter of 2012.

Second Quarter Job Postings Continued Strong Growth

As of May 29, Citi analysts tracked 110,000 job listings on LinkedIn. This represented a 12 percent increase vs. March 31 and a 70 percent rise from September 30.

From this, the group modeled an 11 percent quarter over quarter growth in Corporate Solutions and Customers and Hiring Solutions Segment Revenue. The tracking is a neutral/modestly positive read-thru which supports the second quarter revenue assumptions.

Here is the catch:

As for the $125 price target, this has been based on 45 times the 2013 EBITDA of $307 million. While it is a very high multiple, the  68% EBITDA CAGR through 2014 does support for the firm’s 10-year DCF (12% WACC, 6% Terminal Growth).

Of-course this time is different and 45 times EBITDA of 2013 estimates is cheap for a social media stock with rapid growth…..


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