3 Reasons LinkedIn Corp. Stock Could Fall

By Markets Fool.com

Beating both internal earnings forecasts and consensus estimates will nearly always produce a nice stock price pop for any company. That was certainly the case for LinkedIn after posting fourth-quarter and fiscal 2014 results on Feb 5. With its stock price up about $35 a share since sharing its good financial news, it might seem counterintuitive to discuss possible pitfalls for the professional network.

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However, there are always challenges ahead, and investors are wise to monitor the impact of those challenges. Will heady competition or increased spending signal the beginning of the end for LinkedIn? Of course not, but there are a few key areas in which LinkedIn could stumble in 2015 and beyond.

What's not to like?
When LinkedIn CFO Steve Sordello forecast fourth-quarter revenue in the $600 million to $605 million range, there weren't many complaints. After all, compared to fourth-quarter 2013's $447 million haul, Sordello's expectation should have been music to LinkedIn shareholder's ears. You can imagine, then, what a pleasant surprise actual fourth-quarter sales of $643 million was, not to mention LinkedIn obliterating the prior year's earnings per share and bumping up its member base to 347 million from the prior quarter's 332 million. That said, here a few uncertainties LinkedIn investors would be wise to monitor going forward.

Spending money to make money
Not surprisingly, generating such a big jump in revenue required LinkedIn to dramatically boost its spending. On an annual basis, 2014's nearly $2.2 billion in total expenses was a roughly 50% jump from the year prior. Again, that's to be expected given LinkedIn's top-line growth, and isn't overly concerning in and of itself.

However, LinkedIn management noted during its earnings conference call that spending would not slow anytime soon. Plans are to ratchet up investment in its sales team as it integrates and fully uses new acquisitions such as ad solutions provider Bizo. Boosting ad sales will improve the LinkedIn's revenue diversification plans -- assuming the investment in manpower pays dividends. But don't expect that to happen in the immediate future: According to Sordello, it will likely be nine months, give or take, before the new sales personnel are fully ramped up and providing a return on investment.

Competition, what competition?
LinkedIn has so far enjoyed its niche, professional market with little or no direct competition. Sure, Facebook is similar in nature, but it lacks LinkedIn's solutions geared toward working professionals and employers. But what if Facebook with its1.39 billion monthly average users moved into LinkedIn's neighborhood? Turns out, that might not be far off.

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Though still in beta test mode, Facebook is experimenting with a business collaboration tool called Facebook at Work. As it stands, Work is more of an internal communications solution designed to make businesses more efficient through sharing documents and data. But if Work is a success, how long would it be before it adds features and functionalities more in line with LinkedIn's solutions? As one industry pundit described it, "Facebook is really the only other social media platform that's a threat to LinkedIn's empire." He's right.

Where is the international revenue?
During the earnings call, LinkedIn also shared good news aboutthe growth in international usage. As of year-end, close to 70% of LinkedIn's nearly 350 million members were from outside the U.S. That's an impressive figure, as was the news that member growth in China doubled to an estimated 8 millionin the last year, with more expected.

However, despite the sheer volume of members outside the U.S., international revenue only accounted for 40% of LinkedIn's total revenue last quarter. Boosting non-U.S. sales to better align with member usage presents a great opportunity, but it's also worth following on to ensure LinkedIn maximizes the revenue opportunity from all members, regardless of market.

Are increasing overhead, possible competition from an industry leader, and better monetizing its global member base huge concerns? No, as LinkedIn demonstrated last quarter, it's largely on the right track both now and for the future. But if LinkedIn does trip along the way, it'll likely be due to one, or more, of these critical areas.

The article 3 Reasons LinkedIn Corp. Stock Could Fall originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.