LinkedIn Selloff Continues Despite Bullish Analysts

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Published May 03, 2013

| FOXBusiness

Shares of LinkedIn (LNKD) slumped more than 12% Friday as investors continued to digest its disappointing outlook despite much better-than-expected first-quarter earnings.

The professional networking site has arisen as one of the most successful next-generation social tech companies in terms of revenue generation. Having beat Wall Street expectations on revenue every quarter since its May 2011 initial public offering, its most recent quarter was no different.

Sales last period soared 72% to $324.7 million thanks to its suite of sponsored services and premium accounts, topping average analyst estimates of $317 million, according to a Thomson Reuters poll. Adjusted earnings climbed to 45 cents from 15 cents a year ago, beating the Street’s view of 31 cents.

However, shares of Mountain View, Calif.-based LinkedIn were hammered after hours on Thursday and the sell-off continued through Friday, down 12.9% to $175.59.

The downtrend comes amid LinkedIn’s cautious outlook, predicting current-quarter and full-year revenue below the consensus as well as a slower-than-expected transition to a new marketing platform. In a conference call, LinkedIn predicted its revamped mobile app would not meet advertising expectations as quickly as anticipated.

While positive analyst outlooks often help stem Wall Street jitters, a slew of upbeat brokerage views released Friday morning did little to soften the selloff.

At least six brokerages raised their price targets on LinkedIn, waving off the short-term headaches and instead touting the long-term potential and strong fundamentals of the Silicon Valley tech giant.

“Other than the potential for modest incremental Marketing Solutions deceleration, we found nothing thesis changing in the quarter and would encourage investment on the 10% after hours pull-back,” Evercore analyst Ken Sena said in a note to clients.

Evercore (EVR), which maintained its “overweight” rating and $210 price target on LinkedIn’s stock, said it favors the social network for its “recurring subscription revenue streams, vast addressable markets and attractive margin leverage,” which it sees as supporting “higher value” down the road.

Sena believes the social network’s desktop marketing business “remains strong,” however he did lower his estimate on marketing revenue by $85 million for the year.

Other brokerages to raise their price targets on LinkedIn are J.P. Morgan (JPM), Cantor Fitzgerald, Wedbush Securities and BMO Capital Markets. Despite their relative bullishness, though, some were sure to note the near-term troubles that lie directly ahead.

Needham said that while increased 2013 guidance suggests continued strength in the business, the fact that it fell below lofty expectations could cause some analysts to pause and estimates to be reset. Meanwhile, Cantor Fitzgerald noted the quarterly revenue growth last period was "not as pronounced" as prior periods.

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