LinkedIn Earnings Review Q3 2014

  • LinkedIn beat revenue and EPS estimates in Q3 2014.
  • Linked recorded improvements across operating metrics.
  • LinkedIn valuations are expensive given the company's profitability.

LinkedIn Earnings Review Q3 2014

LinkedIn (NYSE:LNKD) reported its earnings for Q3 2014 on 30 October. The company beat revenue and Non-GAAP EPS estimates for the quarter. The professional networking site registered better member addition when compared to the previous quarter. With improvements in monthly active members and engagement levels on the site, LinkedIn’s performance in Q3 was strong across metrics. However, LinkedIn streak of GAAP net losses continued for the third quarter on the trot. Viewed in this light, in spite of its otherwise healthy performance, LinkedIn valuations make the stock an expensive investment.

LinkedIn Earnings Q3 2014: Estimates vs Actuals

LinkedIn beat adjusted EPS estimates by a healthy margin.

LinkedIn Q3 2014

Estimates

Actuals

Beat %

Revenue ($ million)

557.5

568.3

2%

Non-GAAP EPS ($)

0.47

0.52

11%

LinkedIn beat its own Q3 guidance by an even bigger margin. The company’s expectations of revenue and adjusted EPS were $543-$547 million and $0.44 respectively.

LinkedIn Revenue Growth

In Q3, LinkedIn registered a revenue growth of 44.6% YoY and 6.4% sequentially, adding an incremental revenue of $34.4 million over Q2 2014. LinkedIn’s growth was fuelled largely by its Talent Solutions segment, with all three segments growing at or over 43% YoY.

LinkedIn Revenue Break-Up

Revenue ($ million)

% of Revenue

YoY Growth

Talent Solutions (Recruitment)

345

61%

45%

Marketing Solutions (Ad-revenue)

109

19%

45%

Premium Subscriptions

114

20%

43%

Total

568

A price hike in the Talent Solutions segment could drive revenue following its implementation in Jan 2015.

LinkedIn added 18.6 million members in Q3, taking its tally to 332 members, implying a growth of 28% YoY and 6% sequentially. The site’s user engagement metrics are as follows:

  • Unique Visiting Members – 90 million, 16% YoY growth, addition of 5.8 million
  • Mobile Unique Visiting Members – 42 million, 45% YoY growth, addition of 4.5 million
  • Member Page Views – 28 billion, 28% YoY growth, addition of 2.6 billion

In Q3, LinkedIn recorded a positive trend in all of the above metrics, when compared to Q2 2014. In Q3, approximately 75% of new members came to LinkedIn from outside the US, with network growth from China as a major contributor in recent months.

LinkedIn Profitability And Cash Flows

LinkedIn registered an operating profit and net loss of $8.6 million and $4.16 million respectively, representing operating profit and net loss margins of 1.5% and 0.7%. Stock based compensation has been increasing quarter after quarter for over 2 years and accounted for 15% of revenue in Q3, dragging LinkedIn's profit margins.

LinkedIn’s adjusted EBITDA of $151 million and adjusted EBITDA margin of 27% marked an improvement over Q2 adjusted EBITDA of $93 million and adjusted EBITDA margin of 24%.

LinkedIn ended the quarter with $2.3 billion in cash and marketable securities, and an operating cash flow of $181 million or 32% of revenue.

LinkedIn Guidance For Q4 2014 and FY 2014

LinkedIn expects Q4 2014 revenue to be in the range of $600 to $605 million. The company’s guidance translates to a 34-35% YoY growth and is much lower than the average growth rate of 46% recorded over the last four quarters. LinkedIn’s Q4 earnings guidance pegs Non-GAAP EPS at $0.49 a share.

The guidance comes across as yet another conservative estimate by the company. LinkedIn has consistently beaten its own guidance in several quarters. So, if LinkedIn’s performance actually slips to those levels, its stock could be in for a correction. However, given its track record, one might not want to read too much into the guidance.

LinkedIn’s full year 2014 guidance pegs revenue in the range of $2.175 billion – 2.180 billion, representing a 42.3%-42.7% growth over its FY 2013 revenue. This again is much lower than the FY 2013 growth of 57.2%. Non-GAAP EPS for the full year is expected to come in at $1.89 a share.

LinkedIn Analyst Estimates For Q4 2014 and FY 2014

Analyst estimates of Q4 2014 revenue and non-GAAP EPS stand at $611.6 million and $0.52 a share, respectively. The implied full year revenue and non-GAAP EPS come in at $2.186 million and $1.93 a share, respectively.

LinkedIn Valuations

LinkedIn currently trades at $202.9 a share. LinkedIn’s Price to Sales ratio currently stands at 12.1. LinkedIn’s revenue growth is healthy and its performance has been good across operating metrics like member growth, monthly member visits and page views. However, the company’s current valuations are steep considering that it isn’t profitable currently. Our LinkedIn stock analysis has more insights about the company’s fundamentals.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed 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. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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