Brean Initiates Sell On LinkedIn, Attempts At Improving User Engagement Are 'Degrading' User Experience

Brean Capital initiated coverage on LinkedIn Corp LNKD Monday with a Sell rating and $208 price target.

Analyst Sarah Hindlian felt that the company's Sales Navigator expectations were too high, along with valuation, and that the site lacks "browsability."

Hindlian noted that "attempts at improving user engagement with InMails, the Publishing Platform, etc. are actually degrading the user experience, which is critical to advertising and subscription success."

The analyst indicated that member engagement metrics were lagging the industry and Hindlian wanted to see "new initiatives drive improved user metrics, in particular more browsing, before anticipating significant advertising revenue upside."

Sales Navigator currently lacked functionality, according to Hindlian, and could be disruptive "if sales people are significantly on boarded to contact LinkedIn users."

Hindlian also felt that the company's initiative to help sales people make connections to potential customers through colleagues would reduce use of company-wide pooling features. The analyst believed "that few sales people who have spent entire careers building networks will be open to the idea of sharing their database of contacts with potential competitors."

A danger of cannibalization to core premium subscriptions was another possible outcome for Sales Navigator. "A study done by Social Centered Selling, which LinkedIn has quoted, notes that as of 2012, in a survey of 511 sales people primarily participating in B2B sales, 78.2 percent of sales people were already leveraging social media as part of their sales process, with LinkedIn the most frequently used site. SMB selling was 74.9 percent," according to the analyst note.

The firm's $208 price target was derived from a DCF analysis and yielded a 9.0x forward EV/FY15 Sales multiple and 31.8x forward EV/FY15 EBITDA multiple. The company's current consensus multiples were 10.1x EV/ FY15 Sales and 36.9x EV/FY15 EBITDA.

LinkedIn closed at $260.17 Monday, up 0.41 percent.