Morgan Stanley Downgrades LinkedIn, Thinks It Won't Be As Big Of A Platform As Originally Thought

Morgan Stanley’s Brian Nowak downgraded the rating on LinkedIn Corp LNKD from Overweight to Equal-weight, while lowering the price target from $190 to $125.

Nowak believes that “slowing enterprise and online talent solutions growth and rising investment across all 4 businesses reduce earnings power and raise execution risk” for the company.

Overestimated Platform Monetization

The analyst explained that the earlier bullish stance on LinkedIn’s platform monetization opportunity had been based on expectations of strong Talen Solutions growth for several years to come, as well as new emerging opportunities, such as B2B advertising, Lynda and Sales Navigator.

“But 4Q:15 results, 2016 guidance, decelerating large enterprise customer growth, and recent management commentary on strategic investments make us believe we have overestimated LNKD’s ability to grow its platform and underestimated the investment needed to grow,” the Morgan Stanley report said.

What Can Drive The Stock?

Nowak believes that LinkedIn’s ability to reaccelerate growth at Talent Solutions and/or drive better than expected results for B2B advertising, Sales Navigator and Lynda might be able to rekindle investor interest and drive the stock up.

On the other hand, “continued faster than expected deceleration and/or mis-execution will likely cause the stock to be range-bound (best case) or trend toward our bear case valuation ($60/share),” Nowak added.