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Shares of LinkedIn Corporation (LNKD - Analyst Report) dropped 3.29% in after-hours trading as the professional networking behemoth reported break-even earnings which lagged the Zacks Consensus Estimate of a penny and was also was down from earnings of 5 cents reported in the year-ago quarter.

Quarter Details

LinkedIn’s revenues of $392.9 million not only increased 55.9% on a year-over-year basis but also came ahead of the Zacks Consensus Estimate of $384 million. Revenues were buoyed by strong performance across its business segments.  

Segment-wise, revenues from Talent Solutions were up 62.3% from the year-ago quarter to $224.7 million. Revenues from Marketing Solutions increased 38.2% on a year-over-year basis to $88.5 million. LinkedIn garnered $79.8 million revenues from Premium Subscriptions which increased 61.0% on a year-over-year basis.

LinkedIn now has 22,000 customers under contract which include 1,700 new customers added during the third quarter. According to comScore, the company’s monthly unique visitors (excluding mobile) increased 30% year over year to 142 million. Combined unique visitors to LinkedIn and SlideShare came in at 182 million.

According to the company, unique visiting members grew approximately 49% year over year (including mobile). The company has launched innovative products in the mobile segment such as Recruiter Mobile and Mobile Work With Us.

The launch has come at an opportune time when recruiters are migrating away from the desktop toward mobile devices to search for probable candidates. Moreover, the mobile segment was responsible for 38% of unique visitors, which increased from 25% in the year-ago quarter.

Geographically, LinkedIn’s revenues from the Americas increased 51.7% on a year-over-year basis. Revenues from the Europe, Middle East & Africa (EMEA) region grew 65.2%. Asia-Pacific recorded revenue growth of 69.8% on a year-over-year basis.

Despite the strong revenue performance, a 58.7% year-over-year increase in operating expenses (excluding amortization) impacted LinkedIn’s operating margins. As a percentage of revenues, operating expenses increased 174 basis points (bps) to 97.9%. This primarily led to a contraction in operating margins, down 174 bps year over year.

LinkedIn’s adjusted net loss (excluding amortization but including stock-based compensation) came in at $64.9K or break-even compared to $5.1 million profit or earnings per share of 5 cents in the year-ago quarter.

Balance Sheet & Cash Flow

LinkedIn ended the quarter with cash and cash equivalents of $1.69 billion versus $262.7 million in the prior quarter. Total deferred revenues in the quarter were $331.2 million, up from $317.1 million in the previous quarter. The company generated $126.0 million in cash flow from operation, up from $124.2 million reported in the previous quarter.

Guidance

The company expects fourth-quarter 2013 revenues in the range of $415 million to $420 million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to range between $98 million and $100 million.

LinkedIn revised its fiscal 2013 revenue guidance to $1.5 billion up from earlier range of $1.455 billion to $1.475 billion. Adjusted EBITDA guidance was also increased from the earlier guided range of $340.0 million–$355.0 million to $364 million.

Our Take

LinkedIn’s third-quarter results benefited the most from its Talent Solution and Premium Subscription businesses, which continue to grow substantially. The company, which is a leader in the emerging online professional networking segment, has gained worldwide popularity and has grown steadily in the recent past. The company’s traction in the mobile segment is also encouraging. Moreover, the company upped its guidance.

However, margins lagged as the company continued to invest in product innovations and marketing. The company is expected to continue its investments in the near term which might impact its profitability.

We believe that the investments in strategic products is necessary as LinkedIn faces stiff competition in the professional networking space from companies like Facebook (FB - Analyst Report) and Google . Additionally, the emergence of companies likes ValueClick could change the scenario rapidly over the next few years, as they introduce new services at regular intervals.

Currently, LinkedIn carries a Zacks Rank #3 (Hold).

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