LinkedIn’s Sales Forecast Trails Estimates on Slow Growth

LinkedIn Forecasts Sales That May Trail Estimates on Slow Growth
LinkedIn is investing in mobile applications as consumers’ shift to smartphones and tablets and away from personal computers. Photograph by Andrew Harrer/Bloomberg

LinkedIn Corp. forecast sales that trailed analysts’ estimates, pushing the stock down more than 6 percent, as growth slows in all three of the professional networking site’s businesses.

First-quarter revenue will be $455 million to $460 million, the Mountain View, California-based company said yesterday in a statement. Analysts on average projected sales of $469.4 million, according to data compiled by Bloomberg.

LinkedIn, whose shares have more than quadrupled since the company’s 2011 initial public offering, is headed for its fifth straight quarter of decelerating sales growth. To expand its potential revenue base, LinkedIn is seeking to reach workers overseas, add mobile features and make acquisitions. The company said yesterday that it bought Bright Media Corp., an analytics company that helps match candidates with the right employers, for about $120 million in cash and stock.

“LinkedIn is continuing to grow, but that growth is slowing because of a scaling up of the business,” said Steve Weinstein, an analyst at ITG Investment Research. “As you get bigger, it gets harder and harder to find a lever that can be material to growing your business.”

The shares fell 6.2 percent to $209.59 at the close in New York.

Still Pricey?

Even with the stock drop, LinkedIn was trading at 127 times projected 2014 earnings, compared with a price-to-earnings ratio of 51 times for Facebook Inc. and 22 times for Google Inc.

LinkedIn’s net income tumbled 67 percent in the fourth quarter to $3.78 million, or 3 cents a share, from $11.5 million, or 10 cents, a year earlier, the company said. Sales in the period jumped 47 percent to $447.2 million, exceeding the $437.6 million average analyst estimate, according to data compiled by Bloomberg.

Based on the midpoint of its first-quarter forecast, revenue this period will increase about 41 percent, down from 72 percent growth in the same period a year earlier.

Membership climbed 37 percent to 277 million from 202 million a year ago, when the number of users increased by 39 percent. Sales in talent solutions, LinkedIn’s main business, rose 53 percent to $245.6 million, compared with growth of 90 percent in the same period last year.

The acquisition of Bright will add about $25 million in operating expenses this year and brings with it no current revenue, Blake Harper, an analyst at Wunderlich Securities, wrote today in a report.

‘Strategic Sense’

Still, “the deal makes strategic sense and should help LinkedIn move closer to building its economic graph while also acquiring a potential competitive threat,” wrote Harper, who has a buy rating on the stock.

Revenue growth in LinkedIn’s advertising business, called marketing solutions, slowed to 36 percent from 68 percent a year earlier, while the premium subscriptions unit increased revenue by 48 percent, down from 79 percent in the same period last year.

It’s been a mixed quarter so far for the other top social-networking services. Twitter Inc. said earlier this week that its user growth was slowing, pushing shares of the microblogging service down 24 percent yesterday. Facebook last week reported revenue that topped analysts’ estimates, with more than half of ad sales coming from mobile devices. The stock soared 14 percent after the announcement.

In international markets, where LinkedIn faces competition from Viadeo in France and Xing in Germany, sales rose 54 percent to $176.1 million and accounted for 39 percent of revenue, up one percentage point from a year earlier.

China Growth

Expansion in China is a key piece of LinkedIn’s growth strategy, Chief Executive Officer Jeff Weiner said on a conference call yesterday. He said the company could establish a joint venture in China as a way to crack the market given the challenges that U.S. Internet services have had there.

China is “where today we already have 4 million members, but where nearly one in five of the world’s knowledge workers and students live,” he said. With a population of 1.35 billion, China is more than quadruple the size of the U.S.

LinkedIn said that 41 percent of traffic now comes from mobile devices, though it didn’t disclose mobile revenue. Internet companies including Facebook and Google have invested heavily in capturing users as they move to smartphones and tablets even as sales have been slow to catch up.

To make LinkedIn relevant to more people, the company expects to start focusing on services for blue-collar workers, such as laborers and people in skilled trades, Weiner said.

“We want to make sure we are proactively addressing the volume of jobs available on LinkedIn so we can address that broader audience over time,” he said.


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