LinkedIn (LNKD) Stock Falls After Strong Earnings But Poor Outlook

LinkedIn Corp (NYSE: LNKD)

LinkedIn is having an incredibly rough time in the market today. After reporting earnings for the fourth quarter of 2015, investors have made up their minds… they don’t like what they see! Today, we’ll take a look at earnings, how the market reacted to the news, and what we can expect to see from LNKD moving forward. So, let’s get right to it…

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LinkedIn Earnings Hits & Misses

As mentioned above, LNKD released its earnings report for the fourth quarter yesterday after the closing bell. At first glance, the report was overwhelmingly positive. However, when you dig into the details, there is a major concern outlined. Here’s what we saw from the earnings report…

  • Revenue – In terms of revenue, LNKD did incredibly well. While analysts expected for the company to produce revenue in the amount of $857.59 million, the company actually produced revenue in the amount of $862 million. This is a 34% year over year growth from the fourth quarter of 2014 when LinkedIn generated $643 million in revenue.
  • Earnings – The company also did incredibly well when it comes to earnings per share. While analysts expected that LNKD would produce $0.78 per share in the fourth quarter, the company actually reported earnings in the amount of $0.91 per share. This is up more than 51% year over year from $0.62.
  • Profit – Looking at the information above, it’s hard to imagine what the fuss is. Overall, the report looks overwhelmingly positive… right? Well, it does until you look at profit. In the fourth quarter, LNKD posted net income in the amount of $126 million. This figure came in at less than half of the Q4 2014 net profit in the amount of $354 million. Essentially, while revenue is up across all of LinkedIn products, the costs associated with those products are growing… and that is very concerning for investors.

In a statement, James Gellert, CEO of Rapid Ratings, essentially said that he is not concerned with the decline of net profits because LNKD is positioned to be stable. Here’s what he said…

Like Facebook, Twitter, and other social technology companies, LinkedIn is investing in its growth and providing future value to its user base… This is another example of how companies in their early development are challenged by the quarterly assessment under the public market microscope.”

How The Market Reacted To The News

As investors, we have learned that there are few things that can cause movement in the market quite like earnings, and we’re definitely seeing movement from LNKD today. While the report did have some positive points, growing concerns about profitability are dragging the value of the stock down in a big way. Currently (9:35), LNKD is trading at $127.50 per share after a loss of $64.87 per share or 33.69% so far today.

What We Can Expect To See Moving Forward

Moving forward, I have a relatively mixed opinion of what what we can expect to see from LinkedIn. It all depends on how far forward you would like to look. In the short term, concerns over net profit are likely to continue pushing LNKD downward. However, it’s always a good thing when companies make investments in themselves to cause growth. That’s what LNKD is doing. I’m not concerned with these investments as LinkedIn has created a solid foundation for itself and will have no problem maintaining as a company. In the long run, I’m expecting to see incredibly strong growth as these investments start to pay off.

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What Do You Think?

Where do you think LNKD is headed and why? Let us know your opinion in the comments below!

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