LinkedIn Sales Forecast Trails Estimates as Growth Slows

LinkedIn Corp., struggling to reignite growth, gave a second-quarter sales forecast that missed analysts’ estimates.

Second-quarter revenue will be $500 million to $505 million, the Mountain View, California-based company said in a statement yesterday. Analysts on average were projecting sales of $505.5 million, according to data compiled by Bloomberg.

LinkedIn, whose stock gained 89 percent last year only to lose more than a quarter of its value after the last sales forecast disappointed investors, is facing six straight quarters of decelerating growth. In order to boost sales, the biggest online professional-networking service has been working to boost job-related services, particularly for smartphones and tablets, and has invested to expand its user base in China.

“Growth is slowing down, but it’s slowing down because they’re so big now,” said Colin Gillis, an analyst at BGC Partners in New York who rates the stock a buy. “Historically they almost always exceed the high-end of their guidance range. Investors who want to own LinkedIn have to make sure they have the stomach for the volatility that comes with this stock.”

LinkedIn fell 8.4 percent to $147.73 at the close in New York, the biggest drop since October.

Internet stocks that are valued based on their growth potential have taken a hit as investors question whether the companies can keep up their revenue expansion. The Nasdaq Internet Index is down 16 percent from a March peak.

Internet Valuations

First-quarter sales rose 46 percent to $473.2 million, beating the $466.6 million average estimate. The company posted a net loss of $13.4 million, or 11 cents a share, compared with net income of $22.6 million, or 20 cents, a year ago.

Membership increased to more than 300 million users, the company said. LinkedIn makes money through advertising, software for recruiters and premium accounts. For 2014, LinkedIn forecast revenue of $2.06 billion to $2.08 billion, trailing analysts’ average projection for $2.11 billion.

Twitter Inc., among the most expensive Internet stocks, has declined 39 percent so far this year after more than doubling in the month following its Nov. 6 initial public offering. The company this week reported a slowdown in user growth. Facebook Inc. last week reported first-quarter profit and revenue that exceeded analysts’ estimates.

LinkedIn is among the most expensive technology stocks compared with its peers, trading at 943 times projected 2014 earnings. That compares with a price-to-earnings ratio of 91 for Facebook and 31 for Google.

International Expansion

LinkedIn has said that international expansion will fuel revenue growth. The company in February established a Chinese language website to provide more localized service, agreeing to restrict some content to adhere to state censorship rules. While China has a population of 1.35 billion with deep Internet penetration, it’s a market few where few U.S. Web companies have succeeded. Twitter and Facebook are blocked in China.

The U.S. was still the biggest market for LinkedIn, representing 60 percent of first-quarter revenue. Sales from international markets were $188.3 million. Revenue from the LinkedIn’s talent solutions business, the biggest moneymaker, gained 50 percent to $275.9 million, the company said.

“Sentiment has turned decidedly negative on LinkedIn given the rate of decelerating growth and relatively high valuation,” said Doug Anmuth, an analyst at JPMorgan Chase & Co. who rates the shares the equivalent of a buy. “We believe ongoing enhancements to content and relevancy -- including recently expanding LinkedIn’s publishing platform to all LinkedIn members -- will continue to drive engagement and monetization, especially on mobile.”

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