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Why Wall Street Isn't Freaking Out About LinkedIn's Earnings

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Why Wall Street Isn't Freaking Out About LinkedIn's Earnings

Shares of LinkedIn Corp (NYSE: LNKD) spiked higher by more than 12 percent on Thursday after the company reported its second-quarter results. However, shares reversed course and not only gave up all of its gains but were trading lower by more than 9 percent on Friday.

Here is a summary of what Wall Street's top analysts are saying.

SunTrust: ‘Steady Progress' In Growth Initiatives

Bob Peck of SunTrust Robinson Humphrey commented in a note that LinkedIn's ability to continue "innovating" and "address" the expanding total addressable market are "positives" that outweigh risks in the longer term.

Peck continued that LinkedIn's positives in the quarter include: 1) mobile traffic growth at 2x the rate of overall activity; 2) sponsored updates grew approximately 2x year-over-year, 3) TAS customer count rose 33 percent year-over-year and Hiring revenues grew 32 percent year-over-year; 4) overall member growth rose 21 percent to 380 million while China members surpasses the 10 million mark; and 5) Lynda.com's contributions is a "positive."

Bottom line, LinkedIn's momentum and key innovations will remain the primary area of investor focus in the near term.

Shares remain Buy rated with an unchanged $275 price target.

Related Link: LinkedIn Had A 'Whopper Of An EPS'

Credit Suisse: Look Past The Guidance

Stephen Ju of Credit Suisse commented in a note that LinkedIn's "strength" in Talent Solutions and greater-than-expected contribution from Lynda.com "were overshadowed" by management's commentary over the continued declines seen in the legacy display.

Ju noted that the legacy display business is now 3 percent of total revenue and "de-indexed" as a contributor and "presents little incremental downside risk" to estimates. Looking past the "transitory headwind," the analyst highlighted five key bullet points to support his bullish stance: 1) strong corporate customer additions and average revenue per user growth; 2) growing contribution from Sponsored Updates/Bizo; 3) continued ramp of Sales Navigator; 4) accelerating user engagement; and 5) ongoing ramp of the company's presence in China.

Ju concluded that his long-term positive investment thesis "remains intact."

Shares remain Outperform rated with a price target raised to $311 from a previous $307.

Pacific Crest: Q2 ‘One Of The Best Of Any Internet Company

Evan Wilson of Pacific Crest commented in a brief note that LinkedIn reported "one of the best Q2s of any Internet company."

Wilson highlighted the company's "big" upside in the quarter while the Lynda acquisition is contributing positively at an early stage in which he stated that "given the Street's headaches around Lynda, this is great news."

Commenting on the Display advertising declines, Wilson argued that the segment is "not a business that was being relied on for growth," and as such it is "less of a concern." The analyst also touched on LinkedIn's lowered guidance for the year and argued "assuming guidance is 100 percent correlated with reality has been a serious LinkedIn modelling error historically."

Shares remain Overweight rated with an unchanged $250 price target.

FBR & Co: ‘Mixed' Results

William Bird of FBR & Co. commented in a note that LinkedIn's results were "mixed" as the headline beat was overshadowed by a reduction of its 2015 core revenue guidance.

Bird noted that investors were expecting a "material guidance beat" based on the assumption that the bar had been set "very low" following the first quarter print. In addition, the analyst pointed out the sequential "flattening" in unique visiting members may "raise growth concerns," even though an 18 percent growth in page views per unique visitor indicates high engagement activity.

On the other hand, Bird pointed out that Sponsored Updates, a "critical" part of LinkedIn's mobile advertising success, contributed $63 million in revenue, marking an increase of more than 100 percent year-over-year. In fact, the analyst argued that there is still room for growth. In addition, the sales reorganization appears to be "going well" based on "high" new customer additions, lower churn, and higher net adds.

Bottom line, Bird argued that LinkedIn is a "great company at a bad price" and that the stock's "low margin of safety and high valuation may become more relevant as growth moderates."

Shares remain Market Perform rated with an unchanged $180 price target.

Related Link: The Rationale To Sell LinkedIn Stock

Brean: Headlines Masked By Lynda

Sarah Hindlian of Brean Capital commented in a note that LinkedIn's headline results "looked strong" but its print was actually "weak" and "masked" by Lynda.com.

Hindlian pointed out that LinkedIn's second-quarter revenue read of $712 million was ahead of the $680 million analysts were expecting. However, based on the company's historical 5.4 percent beat, the analyst was expecting a read of $710 million to $715 million.

Hindlian also noted that LinkedIn reported revenue of $443 million for its Talent Solutions segment, ahead of the $419 million analysts were expecting. The analyst continued that this figure actually included an $18 million contribution from Lynda.com, which was not in the Street's models. As such, excluding Lynda, the segment's revenue was $424 which marks "another steep deceleration" in growth from 52 percent year-over-year in fiscal 2014, to 36 percent year-over-year in the first quarter and now 32 percent year-over-year in the second quarter.

Finally, the company's Talent Solutions average revenue per user declined year-over-year while at the same time its customer count grew. The analyst stated that that this could signal price cuts are "imminent" given "heavy saturation" in the market.

Shares remain Sell rated with an unchanged $172 price target.

Latest Ratings for LNKD

DateFirmActionFromTo
Jul 2016CitigroupMaintainsNeutral
Jun 2016RBC CapitalDowngradesOutperformSector Perform
Jun 2016UBSDowngradesBuyNeutral

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