Is LinkedIn About to Phase Out?

With shares of LinkedIn Corporation (NYSE:LNKD) trading at around $176.00, is LNKD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

LinkedIn dropped 13 percent on Friday due to weak guidance. Analysts expected Q2 revenue to come in at $360 million. LinkedIn announced it expected Q2 revenue to come in between $342 million and $347 million. Analysts expected FY2013 revenue to come in at $1.49 billion. LinkedIn announced that it expected FY2013 revenue to come in between $1.43 billion and $1.46 billion. Despite these being disappointments, they're still vast improvements. High expectations are one of LinkedIn's greatest challenges. Two other big negatives at the current time are increased costs and poor valuation.

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There are many more positives for LinkedIn, which include:

Profitability (unlike many other social media companies, it doesn't rely solely on ads) Consistent revenue and earnings improvements Monetization expertise Q1 revenue increased 72.3 percent year-over-year All segments performing well Talent Solutions revenue increased 80.0 percent year-over-year Marketing Solutions revenue increased 56.0 percent year-over-year Premium Subscriptions revenue increased 73.0 percent year-over-year Cash flow from operations increased to $103.9 million from $63.2 million

It should also be noted that only 38.0 percent of revenue was from international markets, which means there is still a great deal of international growth potential.

In regards to site traffic, it has remained stagnant over the past two years. That might sound bad, but LinkedIn is ranked #14 globally and #10 in the United States. As long as that kind of traffic can be at least maintained, there will be a lot of monetization opportunities.

Now let's take a look at some comparative numbers. The chart below compares fundamentals for LinkedIn, Facebook (NASDAQ:FB), and Monster Worldwide (NYSE:MWW). LinkedIn has a market cap of $19.01 billion, Facebook has a market cap of $67.39 billion, and Monster Worldwide has a market cap of $546.75 million.

	LNKD	FB	MWW
Trailing   P/E	675.35	577.35	N/A
Forward   P/E	84.01	36.27	12.30
Profit   Margin	3.54%	1.22%	-29.06%
ROE	4.76%	0.77%	5.69%
Operating   Cash Flow	$307.68 Million	$1.89 Billion	53.33%
Dividend   Yield	N/A	N/A	N/A
Short   Position	6.70%	7.50%	N/A

 

Let's take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for LinkedIn is stronger than the industry average of 0.10. LinkedIn's cash position has increased to $830.31 million from $749.55 million.

	Debt-To-Equity	Cash	Long-Term Debt
LNKD	0.00	$830.31 Million	$0
FB	0.19	$9.47 Billion	$2.26 Billion
MWW	0.19	$148.14 Million	$164.24 Million

 

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T = Technicals Are Strong    

Despite the big drop on Friday, LinkedIn has still been a top performer year-to-date.

	1 Month	Year-To-Date	1 Year	3 Year
LNKD	1.67%	52.93%	49.69%	N/A
FB	4.57%	6.35%	N/A	N/A
MWW	8.15%	-12.63%	-36.97%	-71.99%

 

At $176.00, LinkedIn is trading below its 50-day SMA, but above its 100-day SMA and 200-day SMA.

50-Day   SMA	176.94
100-Day   SMA	150.85
200-Day   SMA	129.89

 

E = Earnings Have Steady                    

We don't have much information on an annual basis, but at least the trend is in the right direction. Revenue has been especially impressive.

	2008	2009	2010	2011	2012
Revenue   ($)in   millions	N/A	120.13	N/A	522.19	972.31
Diluted   EPS ($)	N/A	0.00	N/A	0.11	0.19

 

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

	3/2012	6/2012	9/2012	12/2012	3/2013
Revenue   ($)in   millions	188.46	228.21	252.03	303.62	324.70
Diluted   EPS ($)	0.04	0.03	0.02	0.10	0.20

 

Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

LinkedIn has brand uniqueness, which to this point has allowed it to perform well. However, there are other players who have the potential to enter the market and create havoc, which include Facebook and Google Inc. (NASDAQ:GOOG). Monster Worldwide is an ever-fading threat.

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Conclusion

There are a lot of positives for LinkedIn. On the other hand, if the market corrects, then LinkedIn will be left in the dust by investors. There would be a flight to quality, or perhaps a flight to cash. There certainly wouldn't be a flight to high-risk tech plays like LinkedIn. This is a concern.