LinkedIn Posts Strong Results Yet Disappoints Market

By Adam Fraser.

LinkedIn, like its distant cousin Twitter, is learning about the harsh realities of life as a listed company.

On the face of it, it’s Q4 results were very strong – with growth in revenue, profit and users. Yet Wall Street didn’t like the guidance it heard for FY2016 growth and smashed the stock down by 44%. Yep – almost half the value of the company lost in a single day. Listed company life may look glamorous but it’s a wild ride. And as Twitter is finding, negative sentiment around a stock price over a long enough period of time can seep into sentiment around the platform as a whole.

If you want the full detail you can plough through the financials, investor presentation and investor conference call. If you just want the headlines, here are 10 take-aways:

1. Members grew to 414m, from 396m in the prior quarter (4.5% growth) and 347m a year earlier (19.3% growth).
2. Unique visiting members (ie active members) were 100m, flat on prior quarter of 100m and 7.5% higher than the 93m active users a year ago. Interesting to see that less than 25% of total members are actually active on the platform. I am surprised we don’t hear more from management about strategies to drive dormant members to active, as this would appear to be the lowest hanging fruit to true user growth.
3. 57% of monthly users are accessing LinkedIn via a mobile, up from 49% a year earlier but still well below the 90+% of Facebook’s users who access via mobile . The recent release of its new app is assisting here.
4. Despite its noble attempts to diversify its income streams away from pure recruitment related activity, Talent Solutions remains the dominant division, driving 63% of LinkedIn’s revenue in FY2015, which is actually an increase on the FY2014 total of 60%. Marketing solutions (driven by sponsored updates) and subscriptions (driven by sales navigator) continue to contribute around 20% each.
5. Financials for the fourth quarter were strong, with revenue of $862m (34% increase on prior year) and EBITDA of $249m (39% increase on the prior year). Full year results showed revenue just under $3bn and EBITDA of $780m. Significant numbers, but the guidance for next year was the key focus of the market.
6. LinkedIn provided guidance for FY16 revenue of approx $3.6bn which was well below market expectations of around $3.9bn. EPS guidance was $3.05-$3.20 per share versus an expectation of $3.67. The management commentary around the reasons for the slowing growth were largely ambiguous. Credibility wasn’t helped by a $50m write down related to a previous acquisition. Result – a spooked market which smashed the stock.
7. A key engagement metric moved lower in the quarter with member page views dropping to 37bn from 38bn in the previous quarter. Whilst still a healthy increase on a year ago (30 bn) any hint of a decline in engagement is a key concern. Something to watch closely next quarter.
8. LinkedIn remains a reasonably US centric platform, with the USA contributing 60% of total group revenue
9. LinkedIn continues to focus on (and invest in) its big data and predictive analytics capability; it announced it had acquired a tech start up Connectifier further boosting its ability to identify and match job searchers and seekers
10. Management observed weakness across a few areas heading into 2016 – including, importantly, field sales growth in its Talent Solutions business as well as some global economic related headwinds.

It is important to distinguish between weakness in true operating activity versus delivering a lower outcome than the stock market had forecasted.  A 44% stock price correction in one day seems perhaps overdone, but there were enough worrying items in a mixed bag of results to justify a sell decision if that’s what you wanted to see. The market in its current mood is selling first and asking questions later.