Brean Not Buying LinkedIn This Earnings Season

• Shares of LinkedIn Corp LNKD have risen 8.55 percent over the last one month, reaching a high of $210.55 on October 23.
• Brean Capital’s Sarah Hindlian has maintained a Hold rating on the company.
• Although the company is expected to report upside to the consensus sales expectations, Hindlian expects most of the upside to be driven by the lynda.com acquisition.

According to the Brean Capital report, “Organic results will suggest some further deceleration, which we believe is acceptable if margins are improving, which is NOT the case with LinkedIn, where we est. Adj. EBITDA margins will be down almost 600bps year on year in Q3’15.”

Analyst Sarah Hindlian expects the Premium Subscription business to witness “involuntary churn,” driven by credit card chip migrations.

“We believe Talent Solutions remains heavily penetrated with a need to push into the SMB market, while we expect Sales Navigator to continue to be sluggish,” Hindlian stated.

For 3Q15, Hindlian expects LinkedIn to reports its revenues above the consensus forecasts, although a bulk of it is expected to be contributed by lynda.com, without which organic revenues would miss the consensus expectation.

Hindlian also believes that the consensus adjusted EBITDA margin expectations for FY2016 could prove to be too high.

“We believe LinkedIn no longer exists in a rare competition-free environment, with the rise of numerous competitors that are increasingly attractive to millennials,” the report stated, adding that an analysis of the Forbes 2000 indicates 74 percent penetration, “suggesting growth will have to occur in the price sensitive mid-market.”