LinkedIn Stock Rally Continues Even With Lagging Forecast

A weaker-than-projected sales forecast failed to derail LinkedIn Corp. (LNKD)’s two-year share rally.

LinkedIn, which has more than quadrupled since its 2011 initial public offering, climbed 11 percent today following yesterday’s second-quarter earnings report. The biggest online professional-networking service issued a revenue prediction for the current period of $367 million to $373 million, trailing analysts’ average estimate for $383.3 million.

Investors instead focused on membership, which has more than doubled since mid-2011 to 238 million, and second-quarter revenue that exceeded analysts’ estimates. The company has raised prices for recruiters, rolled out features to keep users coming back and recently introduced a product letting advertisers promote their brands on members’ homepages.

“People pretty much ignore their guidance, as they consistently crush it,” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, wrote in an e-mail. Pachter has the equivalent of a hold rating on the shares.

LinkedIn rose to $235.58 at the close in New York, and the shares have more than doubled this year. Facebook Inc. (FB), which went public in May 2012, is trading near its offer price of $38 after gaining 43 percent in 2013. The biggest social-networking site reported sales last week that beat analysts’ estimates on surging demand for mobile ads.

With today’s gain, LinkedIn is valued at 155 times estimated earnings for the current year, a premium to Facebook’s price-to-earnings ratio of 54 and more than seven times Google Inc. (GOOG)’s multiple.

Sales Surprises

Revenue in the period ended June 30 climbed 59 percent to $363.7 million, LinkedIn said, topping the $354.3 million average analyst estimate. The company has beaten sales estimates in all nine quarters since its initial public offering.

Membership jumped 36 percent from a year earlier. Chief Executive Officer Jeff Weiner said on the conference call yesterday that the company views its addressable market as the world’s 600 million “knowledge workers,” meaning it still has more than 360 million potential customers.

Net income in the second quarter rose 33 percent to $3.73 million, or 3 cents a share, from $2.81 million, or 3 cents, a year earlier, LinkedIn said.

LinkedIn introduced sponsored updates last week, letting the more than 3 million companies with profiles target users on their front pages. The new offering means some businesses that had been using more traditional display ads will instead be testing sponsored updates, causing some revenue to show up later, Chief Financial Officer Steve Sordello said on the call.

Sponsored Ads

The new ads, which will be marked “sponsored,” can be seen on personal computers, smartphones and tablets. Early customers include insurer Allstate Corp., brokerage Charles Schwab Corp. and Nissan Motor Co.

Sales this year will be $1.46 billion to $1.48 billion, an increase from a forecast in May of $1.43 billion to $1.46 billion. The middle of that range represents growth of 51 percent from 2012.

“Their expectation for the year improved materially,” said Thomas Forte, an analyst at Telsey Advisory Group in New York. “They’re still executing at a very high level.”

Even with the increase, LinkedIn’s 2013 forecast trailed the $1.5 billion average analyst estimate. While all three of LinkedIn’s main units are expanding, growth decelerated in the latest period. Sales growth in talent solutions slowed to 69 percent growth from 107 percent a year earlier and marketing solutions rose 36 percent, down from 64 percent. Premium subscriptions decelerated to 68 percent expansion from 82 percent.

Higher Prices

LinkedIn’s biggest sales generator is its talent-solutions product, aimed at helping recruiters fill jobs. That business accounted for 56 percent of revenue in the period. LinkedIn raised prices for recruiters in some regions in the latest quarter at a mid-single digit percentage increase.

“This price increase was successful,” Arvind Bhatia, an analyst at Sterne Agee & Leach Inc. in Dallas, wrote in a July 29 e-mail. “It was a moderate price increase and came after a long period during which the membership base has doubled.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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