- LinkedIn expected to beat analyst revenue estimates in 2013 Q4 earnings.
- Non-GAAP Earnings Per Share estimate stands at $0.38.
- Linkedin stock is overpriced.
If you are a LinkedIn (NYSE:LNKD) shareholder, you probably have a reason to be excited. After all, the company that reports it’s Q4 2013 earnings on Feb 6th, 2014 has given markets something to cheer about for the last 2 years, with the LinkedIn stock price jumping by 5.19% and 8.6% in Feb 2012 and 2013 respectively post its Q4 earnings announcements.
LinkedIn has traditionally displayed a strong revenue growth that has in the last year, gone from exceptional to healthy. Analysts estimate that this quarter’s year-on-year (YoY) revenue growth will be just a little over half of what it was in the same quarter a year ago. However, in spite of the decline in growth rate, the company’s revenue has been growing at healthy averages rate of 12% Quarter-on-Quarter (QoQ) and 67% YoY in the last 12 months. While the fact that Q3 2013 registered its slowest YoY growth at 56% is not something to worry about, we will be watching this aspect keenly in the coming quarters.
LinkedIn’s revenue comes from 3 broad segments that are listed below along with their contributions to the overall revenue:
- Talent Solutions: 38% of revenue in Q1 2010, 57% of revenue as on Q3 2013
- Marketing Solutions: 32% of revenue in Q1 2010, 23% as on Q3 2013
- Premium Subscriptions: 30% of revenue in Q1 2010 to 20% as on Q3 2013
While the company’s revenue growth has been exciting, when it comes to profitability at operating or net levels, it seems that all of the 259 million professionals (users) on LinkedIn haven’t been able to lift its profits beyond a few notches. Though the professional networking site has managed to keep its head above the water in most quarters, its profitability graph has been quite volatile. To describe how it looks in a nutshell, its not exactly how you want your professional graph to look.
|In USD - millions||Q4 2011||Q1 2012||Q2 2012||Q3 2012||Q4 2012||Q1 2013||Q2 2013||Q3 2013|
|Cost of revenue (in %)||14||13||13||13||12||13||14||14|
|Sales & Marketing (in %)||32||35||33||33||33||34||34||34|
|Product development (in %)||25||25||26||29||25||25||26||27|
|General & Admin (in %)||15||13||14||13||13||13||15||16|
|Depreciation (in %)||8||8||8||9||8||8||9||9|
|Operating Margin (in %)||6||6||6||2||9||7||2||1|
Just when Q4 2012 and Q1 2013 gave the impression that profits had started their upward journey, the following 2 quarters showed a reduction in profitability with Q3 2013 registering a net loss. Investors will be keenly watching revenue growth and profitability apart from user growth.
LinkedIn Company Valuation
At its current price of $212 per share, LinkedIn is definitely overvalued. Though, it is probably attractive in relative terms when compared with a grossly overvalued stock like Twitter which is trading at a price to sales ratio (PS ratio) of about 57, it is still difficult to justify a PS ratio of 17.18 with LinkedIn's current operating and net margins.
|Twitter Q4 2013 Est.||Facebook Q4 2013||LinkedIn Q3 2013||LinkedIn Q4 2013 Est.|
|Market Cap 0n Feb 04, 2014 (billion $)||36.82||159.82||23.80||23.80|
|Revenue LTM (billion $)||0.64||7.87||1.39||1.52|
|Price to Sales ratio (per share)||57.60||20.30||17.18||15.67|
In the scenario that the company meets analysts’ Q4 revenue estimate of $437 million, taking the annual revenue to $ 1.52 billion, the P/S will come down marginally to about 15.67. However, only a healthy improvement in profitability will help LinkedIn become attractive.
To see LinkedIn’s latest stock price movement, click here (NYSE:LNKD)