How To Trade LinkedIn After Earnings
On Thursday after the closing bell, LinkedIn (NYSE: LNKD) will be releasing its quarterly earnings results. Wall Street analysts have consensus earnings per share estimates of $0.07 heading into the report. The high estimate is $0.11 with a low estimate of $0.04.
Since the company only came public last May, there is no year ago earnings data. Over the last 3 months, earnings estimates for LNKD have been moving aggressively higher from a projected loss of $0.01 to the current consensus calling for a profit of $0.07 per share.
During this time, LNKD shares have risen 1.66%. In each of the last two quarters, LNKD has beaten Street consensus earnings estimates by a wide margin.
In the June quarter, its first as a publicly traded company, LNKD reported EPS of $0.10 which compared to Street consensus calling for a loss of $0.03. In the September quarter, the company reported EPS of $0.06 which compared to consensus estimates of a $0.04 loss.
Revenues for the quarter are expected to be $159.72 million with a low estimate of $155.59 million and a high estimate of $162.40 million.
Given its brief but impressive track record of beating Wall Street estimates, along with LNKD's extremely lofty valuation, it will likely take a hefty beat on both the top and bottom lines to move the stock appreciably higher. If the company does not report blow-out EPS and revenues, a sell off is very likely even if the results are ahead of consensus estimates.
The stock trades at a trailing P/E of 1,049 (yes that is correct), a forward P/E of 134.39, and a PEG ratio of 3.15. The company is currently valued at roughly 17 times annual sales.
In sum, LNKD is one of the most expensive stocks on a valuation basis in the market today. That does not necessarily mean, however, that it isn't a good investment - but it does suggest that LNKD is under A LOT of pressure to perform.
Consider, that Wall Street is projecting LNKD's earnings to grow 83.90% next year and 79.57% annually over the next five years. It is these growth projections that underpin LNKD's sky high valuation.
In order for the share price to move higher, LNKD is likely going to have to exceed these expectations. That is a big hurdle to jump over quarter in and quarter out. For this reason, it might not be prudent to go into the print today with a long position in LNKD.
Just yesterday, another high profile IPO, Groupon (NASDAQ: GRPN), released its first ever earnings report as a public company. Groupon reported a small loss compared to Wall Street expectations of a small profit.
Everything else in the report looked pretty good, as revenues were considerably higher than Street estimates and the company's forward looking revenue guidance was in a range well above current consensus. Nevertheless, GRPN is getting crushed on Thursday, falling more than 15% to $20.83.
Due to their rich valuations and IPO darling status, expectations for companies like GRPN and LNKD are set so high that they can be very difficult to blow out of the water - which is frequently needed to generate a sharp move higher in the stock price.
For traders, it is a big gamble to be long this stock into the earnings print. If compelled to take a position, buying put options might be the best risk/reward play.
Options traders are looking for a big move after the bell today. Heading into the earnings report, LNKD shares have risen 0.08% to $76.60. The most active options have been the $80.00 and $85.00 February calls and the $75.00 February puts. Farther out of the money puts, such as the $65.00 strike are also seeing some activity.
In the event of an after hours sell-off, look for the shares to bounce at the 50-day moving average which is $69.75. LNKD would have to fall right around 9% to hit this level, which is definitely a possibility.
If the stock moves higher after the print, the 200-day moving average of $78.05 could provide some overhead resistance. It is quite possible that either the 50-day or 200-day moving average could be tested in Thursday's after hours session, and these levels may provide traders with a high risk/reward opportunity to take a position fading the initial move.
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