Linkedin Stock Analysis: Here’s What Guidance Suggests

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

LinkedIn (NYSE:LNKD) Q4 beat driven by Marketing Solutions. Revenue was $304 million, compared with our estimate of $282 million, consensus of $280 million, and guidance of $270 – 275 million. Talent Solutions revenue was $161 million, compared to our estimate of $161 million, Marketing Solutions revenue was $83 million, compared to our estimate of $66 million, and Premium Subscriptions revenue was $59 million, compared to our estimate of $56 million. Non-GAAP EPS was $0.35, versus our estimate of $0.24, and consensus of $0.19. LNKD does not provide EPS guidance.

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Management provided FY:13 guidance for revenue of $1.41 – 1.44 billion and adjusted EBITDA of $315 – 330 million. LNKD provided Q1:13 guidancefor revenue of $305 – 310 million and adjusted EBITDA of $67 – 69 million.

Increasing our FY:13 estimates for revenue to $1.49 billion from $1.45 billion and for EPS to $1.86 from $1.33 to reflect strong Q4 results and guidance.

Better than expected guidance suggests…

that LinkedIn expects to improve profitability meaningfully during its growth phase. We had previously modeled FY:13 EPS of $1.33, slightly above then-consensus, and adjusted EBITDA of $324 million. Given LinkedIn’s track record of delivering earnings upside, we believe that FY:13 guidance for adjusted EBITDA of $315 – 330 million will prove conservative, and will set a floor for 2013 expectations. As a result, we expect consensus EPS expectations for 2013 to rise significantly, and expect LNKD shares to continue trading at a near 100x EPS multiple.

In our view, LinkedIn has only scratched the surface in terms of attracting Corporate Solutions customers, job seekers, and marketers.  LinkedIn ended Q4:12 with roughly 16,400 customers for its high-ASP Corporate Solutions product. We believe the domestic addressable market could be as high as 300,000, albeit at a lower ASP than the company has enjoyed historically.

Maintaining our NEUTRAL rating, but raising our 12-month price target to $140 from $106 on better-than-expected top-line growth and bullish guidance. Our price target reflects a P/E multiple of  ≈ 75x to our CY:13 EPS estimate of $1.86. Although our multiple continues to be somewhat steep, we believe it is justified due to the company’s significant potential to deliver operating leverage from cost control, strong revenue growth, large addressable market, and dominant position in the marketplace.

Michael Pachter is an analyst at Wedbush Securities. 

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