LinkedIn to Face Lawsuit for Hacking Customers' External E-mail - Analyst Blog

As per Bloomberg, LinkedIn Corp LNKD will likely face a lawsuit for allegedly hacking into customers' external e-mail accounts and accessing their contacts' addresses for marketing purposes. LinkedIn customers are required to give an external email ID as their username. The complaint stated that LinkedIn used these IDs to send 'endorsement emails' to contacts without the consent of its users.

Users whose data was compromised also requested the U.S. District Judge Lucy H. Koh to stop LinkedIn from violating data privacy and return any revenues generated from such actions.

The current spate of allegations, if proven true, will hit LinkedIn's reputation. In Jun 2012, the company was sued for breaching 6.5 million LinkedIn users' passwords. However, the company was acquitted in Mar 2013 and the class action lawsuit dismissed.

It is worth noting that till now LinkedIn has denied all the allegations and stated that it had acquired the consent of its users while sending or contacting anyone from the acquired contacts. It therefore appears that this case is quite similar to the previous one and therefore likely to go in LinkedIn's favor.

LinkedIn, like Facebook FB, stores a host of personal data in its servers and therefore data security is a priority. Despite the best efforts by social and networking companies to incorporate strict user policies and security measures against external threats, incidents of hacking are recurrent.

Thus, resolving the current issue is a priority for LinkedIn. Stricter data usage guidelines should be initiated so that such occurrences are averted in the future. Moreover, with strong growth potential and a positive outlook provided by management, LinkedIn remains a force to reckon with in the professional networking space.

Additionally, the company's expansion in the mobile arena by launching apps for Apple's AAPL iOS and Google's (GOOGL) Android operating systems is a positive.

Nonetheless, continued investments to provide new and improved products and services might affect its profitability. Though impacting LinkedIn's operational performance in the short run, these investments are necessary for member growth and user engagement over the long term. We remain encouraged by the sturdy top-line growth recorded in the past few quarters.

LinkedIn thus remains a pioneer and a leading professional networking company with a wide industry reach. This enables it to explore and tap into every opportunity to connect the global workforce.

Currently, LinkedIn has a Zacks Rank #3 (Hold).