LinkedIn's Q2 Beat, But 'Sit On The Sidelines' Says This Analyst

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LinkedIn Corp LNKD reported better than expected second-quarter numbers on Thursday. However, its shares tanked at opening on Friday and continue to trade significantly down.

Mark May, Internet analyst at Citigroup Inc C, was on CNBC recently to explain the reason behind the decline and to share his outlook for the stock.

Core Didn't Meet Expectations

"The stock has had a nice rebound off of a disappointing Q1, it ran up into the quarter, market was expecting a nice, core organic beat and they did not get that," May began. "On the surface, the company did beat numbers."

He continued, "The upside came from an acquisition, which was not modeled correctly. And if you look at the core, it did not meet the bullish buy side expectations. In addition, and maybe more importantly, the company lowered its guidance for the second half of the year."

Related Link: LinkedIn Had A "Whopper Of An EPS"

May went on, "This is the second quarter in a row that the company had to lower its guidance. And, I think, given the valuation that LinkedIn trades at, which is over 25 times forward earnings, the fact that they have to lower expectations and that growth is decelerating to the 30 to 35 percent range versus 45 to 50 percent [...] I think, the valuation is a little rich here relative to the growth and the trajectory. We are recommending clients to sit on the sidelines on this one."

More Of An Enterprise Software Company

May explained how LinkedIn isn't dependent on advertising as much as other social media companies, saying, "LinkedIn, while categorized often as a social network, really does not generate revenue like, say, Facebook. Advertising is really a much smaller piece of the business and really one of the great things about LinkedIn is they have found a way of generating revenue using subscriptions and it's really more of an enterprise software company."

Image Credit: Public Domain
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Posted In: Analyst ColorCNBCTechMediaMark May
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