With shares of LinkedIn (NYSE:LNKD) now trading at around $106, is the social networking company a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
On Thursday, LinkedIn saw its stock rise after-hours after the company posted third-quarter earnings that beat Wall Street expectations. LinkedIn reported earnings of 22 cents per share on revenue of $252 million, beating average expectations of 11 cents per share on revenue of $244 million. The company said recently that more than 175,000 profiles were being created every day and almost a third of its visits were coming from mobile devices. It said the number of members in the third quarter rose 6.9 percent to 187 million from 175 million at the end of the second quarter. LinkedIn has also made changes to its profile pages and the features it offers to members.
H = High Quality Pipeline
One of LinkedIn’s main efforts recently has centered on getting its members to come to the social network daily. That will help it collect more data for advertisers and help it raise subscription sales. Last month, it rolled out a new feature that lets users follow select industry leaders — handpicked by the company — who post original content to the site. It also revamped its home, news, and profile pages as well as adding a notifications bar for new content. Later in the month, it launched a video advertising platform in order to bump up its ad revenue, allowing advertisers to use their YouTube (NASDAQ:GOOG) or other videos to promote brands.
All these product additions are fairly new and hold potential. “What’s interesting is that it brings some of the untapped value of LinkedIn to the front,” Altimeter Group analyst Susan Etlinger told PCWorld.
T = Technicals on the Stock Chart are Strong
As of November 1, 2012, the stock price is 4.24 percent below its 20Day Simple Moving Average; 5.91 percent below the 50 Day SMA; and 5.46 percent above the 200 Day SMA. Since the beginning of 2012 the stock price has been in an upward trend and is up 69.58 percent year-to-date and up 20.19 percent year-over-year.
E = Excellent Relative Performance to Peers
Many investors favor Return on Equity as a key metric to how well the company is operating. LinkedIn’s ROE of 2.22 percent is still short of rival Monster Worldwide’s (NYSE:MWW) 4.47 percent. Facebook (NASDAQ:FB) ROE data is not available yet because the company only went public in May. Operating margins are also critical for stock evaluation. LinkedIn falls short of competition on that measure with a margin of 5.35 percent compared to 12.13 percent for Facebook and 5.76 percent for Monster.
T = Trends Support the Industry in which the Company Operates
Social media is a risky industry, with as many success stories as duds. Even Facebook, a company that is always in the news and had attracted immense potential investor interest, could not keep up the momentum from its IPO. However, for every Renren (NYSE:RENN) — basically a Chinese version of Facebook that has fallen more than 80 percent since its IPO last year — there are other success stories. Facebook beat earnings expectations last quarter and may be close to stabilizing, while LinkedIn has also managed to sustain itself.
LinkedIn, one of the hottest IPOs of 2011, has managed to keep monetizing its user base and generate consistent revenue growth. However, several analysts are beginning to wonder if the industry is due for a correction and specifically, if LinkedIn may already have seen its best. As the switch to mobile realizes over the next months, it will be critical for LinkedIn to keep working on not only its user base but also its engagement, and consequently, monetization strategies.
LinkedIn looks like a WAIT AND SEE based on the key metrics above. What do you think? Let us know in the comment section below.
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