The Rationale To Sell LinkedIn Stock
In a report published Friday, Brean Capital analyst Sarah Hindlian maintained a Sell rating and price target of $172 on LinkedIn Corp (NYSE: LNKD). Although the headline results for 2Q15 appear strong, the analyst believes that they were actually weak but masked by Lynda.com.
Weak Q2 Results
Ex-Lynda.com, the Talent Solutions business saw another quarter of deceleration, with growth falling to 32 percent year-on-year in 2Q15, from 36 percent in 1Q15 and 52 percent in FY14.
The analyst expressed concern regarding saturation in the high-end market, which was also visible in the ex-Lynda ARPU decline despite rising customer count. "We remain concerned on weakness in the back half, premium valuation, and declining profitability," Hindlian stated.
Echoing Hindlian's sentiments, Evercore ISI analyst Ken Sera downgraded the rating on LinkedIn to Hold, while lowering the price target from $250 to $220. The analyst believes that the stock valuation is too rich at present.
According to the Evercore report, "[A]n accounting benefit pertaining to the company's Lynda acquisition contributed to a result above the high-end of the company's guidance range, which consequently caused an increase to the FY guide."
However, if this accounting impact is excluded, the company has actually revised its guidance downward for 2H15. The analyst believes that LinkedIn's conservative guidance could have been based on the limited visibility into the Marketing Solutions business, as it makes its transition away to feed-based and more performance-based ads from the higher-priced premium display.
Sera prefers to remain on the sidelines, given "the combination of another FY effective guide down, a steep deceleration in the company's 2Q sequential user growth and margins showing compression" ex-Lynda.
Both analyst Hindlian and Sera point out that although the company has raised its FY revenue guidance by $40 million, the guidance actually implies a downward revision of $35 million, when the 2Q beat and the contribution from Lynda.com are factored in.
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