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LinkedIn Downgraded to Strong Sell: Time to Offload It?

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On Feb 10, 2016, Zacks Investment Research downgraded LinkedIn CorporationLNKD to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.

Most of the estimates for this social media company have been moving downward since it announced its results for the fourth quarter of fiscal 2015 on Feb 4, 2016.

Why the Downgrade?

The company issued a weak revenue outlook for first-quarter and full-year 2016.

For the first quarter, LinkedIn expects revenues around $820 million, much lower than the Zacks Consensus Estimate of $829 million. The company expects full-year 2016 revenues in the range of $3.60 billion to $3.65 billion (mid-point $3.625 billion). The guidance is lower than the Zacks Consensus Estimate of $3.688 billion. These projections make us skeptical about the company's near-term performance.

Going forward, we believe that there is a possibility of Facebook FB posing a bigger challenge to LinkedIn in the near future for supremacy in the professional networking space. Moreover, companies like Alphabet Inc. GOOGL and Microsoft MSFT have been introducing new services at regular intervals. These could bring about a rapid change in the scenario and intensify competition, thereby affecting LinkedIn's growth strategy.

Security is another major concern for LinkedIn. If, due to some external attack, security measures are compromised, the company's website would be subject to attacks that degrade or deny access to its business or retail solutions, reducing memberships and ultimately the platform's popularity. Like any other social networking company, LinkedIn has been under the purview of the federal investigating agencies as allegations of data hacking have cropped up.

A dull outlook for first quarter and full-year 2016 and a dismal overall trend resulted in downward estimate revisions for LinkedIn. Over the last 30 days, 3 out of 6 estimates were revised downward for fiscal 2016. None of the estimates moved upward. The Zacks Consensus Estimate moved down from earnings of 75 cents per share to a loss of 26 cents per share over the same time frame.

Despite these headwinds, the company concluded 2015 on a strong note with better-than-expected results in the fourth quarter. Moreover, it saw an impressive 19% increase in its cumulative members. Additionally, we are encouraged by the 30-50% top-line growth recorded over the past few quarters by this professional social networking site.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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