Is LinkedIn Stock Still Trading Above Its Fair Value?

  • LinkedIn stock's drastic drop of 47% following Q4 earnings have left some investors wondering if it has become a value investment.
  • I believe the company is still valued above its realistic growth rate.
  • I think LinkedIn stock will drop another 22% before hitting its fair value.

LinkedIn stock has dropped almost 50% so far this month and it makes perfectly good sense given the LinkedIn (NYSE:LNKD) inflated valuation. However, if you think that such a drastic drop in LinkedIn stock justifies a buying opportunity, then take a close look at its valuation.

LNKD stock chart

Source: LinkedIn Stock Price by

For the trailing twelve months, LinkedIn operating margin was around -5%, which means 2015 is the company’s first net operating loss in a long time. But given the company’s strong growth rate, investors know that patience can often pay off in the long-term. However, LinkedIn’s topline growth is also experiencing a significant slowdown. Finishing 2015 with revenue below $3 billion is an increase of 35% from the year prior, however significantly less than the 45% increase the company saw in 2014. In order for LinkedIn to justify its $13.4 billion market capitalization, they will need to experience double digit growth for the next several years to come.

LinkedIn's Valuation

On the surface LinkedIn’s valuation doesn’t look so bad – 4.5X sales, 3.1X book value – given the industry and growth rate, these multiple valuations aren’t so bad. However, when we get to the bottomline, it distorts the shareholders actual value. Below is my DCF for LinkedIn which uses a 10% discount rate and 5% terminal growth rate. I believe the growth projections are fair, however LinkedIn’s ability to produce positive FCF before 2021 can be possible depending on their operating margin and capital expenditures. But for the model, I am assuming FCF takes off after 2020.


As you can see, I’m valuing LinkedIn’s equity at approximately $10.4 billion, which is 22% below its current market capitalization of $13.25 billion. This represents a price of $78.87 per share. It seems to me as if LinkedIn stock is priced above its realistic growth rate. If the company was able to maintain its historic growth rate then the valuation can be more reasonable, however as growth has slowed the stock price has dropped.

And that is why the LinkedIn stock might look cheap from a sales or book value multiple. If the company can sustain a strong growth rate then 4.5X sales isn’t so bad, however sustaining a growth rate in the low-mid double digits isn’t cheap and that is the reason why I don’t see the same value in LinkedIn stock today.


The $11 billion of LinkedIn’s market cap which was lost in a week may not be the bottom. We’ve seen Wall Street come to the realization of inflated valuations of internet companies before, and that is what I believe happened with LinkedIn. LinkedIn stock was trading above its intrinsic value when it was turning positive earnings with a PE of 900, and it’s doing the same thing now, however, it has come further down to reality. The balance between topline and bottomline growth over the next few years will give us more insight into LinkedIn’s future, but I would stay away from LinkedIn stock until it drops to $78-79 per share and re-evaluate it then.

Show Full Article
5 2
Is this article helpful ?    

Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • See Amigobulls' policy on anonymous authors who use a pseudonym
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

At Amigobulls, we prefer that our authors disclose their real names. However, due to a variety of reasons, author's may prefer otherwise. Recognizing the fact that the ideas conveyed carry greater significance, and to facilitate the dissemination of these ideas, we allow authors to use a pseudonym. However, we do collect the same of details from anonymous authors, as we do from others, like the author's real name and contact information. Of course, this information remains confidential with us, and is not displayed on the site.
Further, to protect the interests of our readers/viewers, anonymous authors are required to make the same set of disclosures as other authors. For more details, you can write to any of our in-house editors at

show more

Comments on this article and LNKD stock

user profile picture
Itai Leshem
Nicholas, I believe you are right, but I have a different angle on this. Read this:
user profile picture
Management are crooks. More to come guys... I wont go into details.. I used to be long on this turd. This stock will trade in the 20s in 2 years time.
Do share this awesome post