The Social Media Tech-Wreck of 2014 has many interesting
casualties. And some are more interesting than others because they
had achieved nearly "blue-chip" status in the land of triple-digit
P/Es, only to be exposed recently for a lack of follow-through in
the earnings department.
One such "social media blue-chip" is
(LNKD) which offered a mixed earnings report last week and dropped
8% on Friday with heavy volume of 10 million shares.
If you follow the Zacks Rank, you already know there was trouble
coming into this report. In fact, LNKD became a Zacks #4 Rank Sell
in late January when the stock was trading $220. Since then, it has
consistently been a #4 or #5 Strong Sell as shares dropped steadily
for over 3 months.
The chart below marks the date of January 24 when LNKD became a
Zacks #4 Rank. That was after their Q4 report when analyst earnings
estimates plunged for this year and next from a projected profit of
$0.97 to a loss of $0.02 in 2014 and from $2.08 to $0.76 in 2015.
A Growing Niche, But No Moat
LinkedIn generates its revenues through three main segments, namely
Talent Solutions (previously Hiring Solutions), Marketing Solutions
and Premium Subscriptions. Talent Solutions derives its revenues
from the sale of the company's Corporate Solutions and LinkedIn
The third segment is Premium Subscriptions, which derives revenues
primarily from online sales of the company's Business, Business
Plus and Executive subscription products. In this segment, the
company offers monthly or annual subscriptions to members.
The professional network market is still in a developmental stage,
so LinkedIn does not face any direct competition at this point. On
the other hand, there is a good possibility that companies like
) could bring competing solutions to the market going forward.
Finally, the company's expansion initiatives in China are
encouraging with the launch of a Chinese-language website.
Considering the growth potential in the country and the size of its
population, it is a good long-term strategic move for LinkedIn.
Anecdotally, I became concerned about LinkedIn business directions
last year with the awkward website function they called
"Endorsing." The presentation seemed shallow with constant prodding
to endorse dozens of people for dozens of skills with a couple of
clicks of the mouse. I just checked the site and it seems this
practice may have been discontinued.
More importantly, given the mixed reaction to a complicated
earnings outlook, with several analysts reiterating their ratings
while others lowered price targets significantly on Friday, the
chances of LNKD remaining in the sell block are high.
That's because earnings estimates are unlikely to rise this week.
If you are a LNKD bull, who still believes in the long-term growth
story and those $200+ price targets, just keep your eye on the
Zacks Rank for a turn-around in the earnings momentum.
Kevin Cook is a Senior Stock Strategist for Zacks.com where he runs
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