- LinkedIn is faced with slowing growth and worsening profitability.
- Yet LinkedIn's stock has rallied more than Facebook's.
- LinkedIn valuations carry a significant downside risk.
LinkedIn earnings for Q4 2014 saw the company beat analyst estimates for revenue and earnings per share. The company showed improvements across metrics and pulled together a good all round performance. LinkedIn's guidance for the upcoming quarter though, was conservative, like it has been in the past. LinkedIn's revenue guidance indicated a sequential decline in revenue, a first for the professional networking site. However, given the company's track record of issuing conservative guidance numbers and then beating them, we wouldn't read too much into it.
Our LinkedIn stock analysis video has a quick roundup of the company's key fundamentals, like cash flows, valuations, long term revenue growth trends and stock performance, following the latest quarter.
For want of a better comparison, I have used Facebook, when comparing stock performance and valuations. Facebook and LinkedIn don't have identical business models in that LinkedIn earns only about 20% of its revenue from advertising. However, Facebook is probably the closest comparison among listed internet companies and is widely used for such comparison.
LinkedIn's Stock Price Gains
Hello and welcome to this videograph about LinkedIn (NYSE:LNKD). LinkedIn's stock has rallied strongly over the last twelve months, rising by 34%. So, is it time to get out? We think there's a disconnect between LinkedIn's valuations and its fundamentals. Here's why.
LinkedIn Valuations Disconnected From Fundamentals
Facebook's financial performance during the year, was far superior to LinkedIn's, with better revenue growth and profitability. However, LinkedIn's stock price has gained by more than that of Facebook's. As a result, LinkedIn's valuations are now much closer to those of Facebook's. While Facebook's Price to sales ratio has improved a fair bit over the last 12 months, LinkedIn's Price to sales multiple, is not far from its year ago level of 15.5.
LinkedIn A Risky Investment
Given the professional networking site's slowing growth rates, and worsening profitability, LinkedIn's current valuations seem to be disconnected from it's fundamentals. LinkedIn valuations are now approaching levels which have consistently triggered corrections in the last twelve months. Given that LinkedIn valuations don't reflect its fundamentals at the moment, the stock is a risky investment option.
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