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LinkedIn Lags on Q4 Earnings, Guides Low

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Shares of LinkedIn Corporation fell 8.48% in after-hours trading as the professional networking company reported adjusted earnings of 5 cents per share which lagged the Zacks Consensus Estimate of 8 cents. Moreover, earnings declined 56.8% from the year-ago quarter.

Quarter Details

LinkedIn’s revenues not only increased 47.3% on a year-over-year basis to $447.2 million but also came ahead of the Zacks Consensus Estimate of $439.0 million. Revenues were buoyed by strong performance across all its business segments.  

Segment-wise, revenues from Talent Solutions were up 52.6% from the year-ago quarter to $245.6 million. Revenues from Marketing Solutions increased 36.4% on a year-over-year basis to $113.5 million. LinkedIn garnered $88.1 million revenues from Premium Subscriptions which increased 48.3% on a year-over-year basis.

LinkedIn’s cumulative members increased 37% year over year to 277 million at the end of the fourth quarter. The company witnessed 31% increase in Unique visiting members and  48% increase in member page views year over year.

During the quarter, LinkedIn launched innovative products in the mobile segment and expanded its product offerings in the Marketing Solutions segment. The company’s mobile engagement was noteworthy as mobile represented 41% of traffic to LinkedIn.

Geographically, LinkedIn’s revenues from the Americas increased 44.9% on a year-over-year basis. Revenues from the Europe, Middle East & Africa region grew 54.9%. The Asia-Pacific recorded revenue growth of 54.6% on a year-over-year basis.

Despite the strong revenue performance, a 57.6% year-over-year increase in operating expenses (excluding amortization) impacted LinkedIn’s operating margins. As a percentage of revenues, operating expenses increased from 90.3% to 96.5%. This primarily led to a contraction in operating margins (down from 9.8% to 3.5%) of the similar magnitude over the same period of time.

LinkedIn’s adjusted net income (excluding amortization but including stock-based compensation) came in at $6.7 million or 5 cents per share compared with $14.3 million or 13 cents in the year-ago quarter.

Balance Sheet & Cash Flow

LinkedIn ended the quarter with cash and cash equivalents of $803.1 million versus $1.69 billion in the prior quarter. Total deferred revenue in the quarter was $392.2 million, up from $331.2 million in the previous quarter. The company generated $82.5 million in cash flow from operation compared to $126.0 million reported in the previous quarter.


LinkedIn provided its first-quarter and fiscal 2014 outlook. For the first quarter, the company expects its revenues to range between $455 million and $460 million, lower than the Zacks Consensus Estimate of $469 million. LinkedIn expects adjusted EBITDA in the range of $106 to $108 million.

For the fiscal 2014, LinkedIn expects revenues in the range of $2.02 to $2.05 billion, lower than the Zacks Consensus Estimate of $2.17 billion. Adjusted EBITDA is expected to be approximately $490 million.

Our Take

LinkedIn’s fourth-quarter top line 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. Synergies from the acquisitions are also expected to positively impact results in the long run.

However, the company’s revenue guidance is below the Zacks Consensus Estimate, which is expected to remain an overhang, going forward. Margins continue to lag due to heavy investments in product innovations and marketing strategies. The company is expected to continue its investments in the near term which might impact profitability.

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

Currently, LinkedIn has a Zacks Rank #5 (Strong Sell).

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