LinkedIn Shares Upgraded, Brean Says Thesis is 'Playing Out'

• Shares of LinkedIn Corp. LNKD have risen 3.11 percent in the last one month.
• Brean Capital’s Sarah Hindlian has upgraded the rating on LinkedIn from Sell to Hold.
• With many of the concerns having mostly played out, the risk/reward appears more balanced at present.

Hindlian believes that Sales Navigator was disappointing and is likely to have cannibalized the company’s premium subscriptions. Talent Solutions, on the other hand, has been seeing meaningful slowing in growth with the high penetration of “price insensitive” large businesses.

“We continue to believe that a lack of differentiation between Sales Navigator and Premium Subscriptions products risks cannibalization, but we feel this is now incorporated into estimates,” Hindlian stated.

Although the company has been working on improving Sales Navigator’s functionality, there appears to be meaningful customer dissatisfaction with the product.

On the other hand, Premium Subscription is expected to see 22 percent growth in 3Q15, before growth accelerates seasonally in 4Q15. Hindlian expects Premium Subs to deliver 26 percent year on year growth in FY15, lower than the 42 percent growth seen in FY14.

With regard to Talent Solutions, growth is expected to stay in the mid to high 20 percent range in FY15, before falling to the low 20 percent range om FY16. The revenue contribution from lynda is expected to, however, mask this deceleration to some extent.

In the Marketing Solutions business, while display advertising has been seeing weakness for several quarters, the Sponsored Updates advertising product has grown 100 percent, year on year.

According to the Brean Capital report, “As Sponsored Updates grow to displace traditional display, we see this headwind as slowing. As a result, we are expecting Marketing Solutions growth to stabilize in the mid 30's percentage Y/Y in the 2H of '15.”