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Not All Of Wall Street Is Convinced Following LinkedIn's Better-Than-Expected Q3 Earnings

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Not All Of Wall Street Is Convinced Following LinkedIn's Better-Than-Expected Q3 Earnings

  • Shares of LinkedIn Corp (NYSE: LNKD) spiked higher by more than 12 percent Friday morning.
  • LinkedIn reported a top and bottom line beat in its third-quarter results.
  • Wall Street analysts were mostly bullish and positive, although several firms maintained a cautious stance.
  • Shares of LinkedIn spiked higher by more than 12 percent on Friday after the company reported a top and bottom line beat in its third quarter.

    Here is a summary of what Wall Street's top analysts were saying following the print.

    Wedbush: ‘Cautiously Optimistic' Q3 Began A Positive Trend

    Michael Pachter of Wedbush commented in a note that LinkedIn delivered a "large" top-line beat and demonstrated "strong" cost control.

    Pachter noted that talent solutions had the largest revenue upside versus expectations ($502 million versus an expected $485 million). Marketing solutions saw revenue of $140 million (flat sequentially), as CPM-based display ads offset growth for sponsored updates, which were nearly 50 percent of marketing revenue and once again grew by more than 100 percent year-over-year. Premium subscriptions revenue of $138 million also exceeded the analyst's $133 million expectations.

    Pachter continued that he has "never questioned the potential" of talent solutions, and the third-quarter print "reinforced that the company is well on the path to dominate" the industry. However, the analyst stated that LinkedIn has a "long runway" ahead of it for its core business.

    Related Link: LinkedIn Tops Q3 Estimates, Shares Surge

    Pachter noted that LinkedIn could double its user base over the long term, but so long as the company's service offering remains "dominated" by talent solutions, the company would need to reinvest a "significant" portion of its revenue growth into marketing and product development to keep its EBITDA contribution margin in the 33 percent to 35 percent range.

    Shares remain Neutral rated with a price target raised to $232 from a previous $200. The analyst stated that he may revisit his rating and valuation as the positive third quarter print "hardly constitutes a trend."

    SunTrust: Growth Initiatives Set Up For ‘Strong' 2016

    Bob Peck of SunTrust Robinson Humphrey commented in a note that LinkedIn's results show it has "multiple" drivers "building momentum for growth" in 2016. These drivers include: 1) talent solutions and Lynda product improvements and integration, 2) mobile growth, 3) sales force expansion and productivity, 4) new products and features and 5) sales navigator and lead accelerator continued market education and penetration.

    Peck offered three items that need to be monitored by investors: 1) secular pressure on display continued in the quarter (down 30 percent year-over-year versus down 27 percent last quarter); 2) pageviews per user showed "nice growth," but overall user engagement measured by UVs/members fell again, and changes to the app will impact pageviews "negatively" going forward; 3) progress in lead accelerator remains "measured," but these are longer sales cycles and may set up for the bottom half of 2016.

    Shares remain Buy rated with a price target raised to $280 from a previous $275.

    Brean Capital: ‘Mixed' Quarter, Core Continues To Decelerate

    Sarah Hindlian of Brean Capital commented in a note that LinkedIn's results were "mixed," as the company benefited from its Lynda acquisition, while its core business continued to show signs of decelerating.

    Hindlian continued that organic talent solutions revenue "stopped free-falling," while the company's guidance for talent implies further deceleration. The analyst added that "disturbingly," both marketing solutions and premium subscriptions decelerated against "reasonable" comps. In addition, sales nav is "not kicking in" (emphasis deleted) after a full year of going live.

    On the positive front, LinkedIn's adjusted EBITDA came in "well ahead" of expectations. As a whole, the company's third quarter was better than the prior two quotes on an "easier bar."

    Bottom line, the analyst doesn't see any signs of stabilization in the core business, as Lynda's performance "drove the quarter and the outlook." However, as adjusted EBITDA metrics are "improving faster than we were expecting," investors should be cautious.

    Shares remain Hold rated with no assigned price target.

    Related Link: Brean Not Buying LinkedIn This Earnings Season

    Macquarie: ‘Improving' Core And ‘Compelling' Product Cycle

    Tom White of Macquarie commented in a note that LinkedIn is "firing on most, if not all, cylinders again."

    White noted that growth and average revenue per user trends in its core talent solutions business is improving, which hints that the client re-segmenting disruption from earlier this year is "indeed behind them." The analyst added that marketing solutions is "evolving" into a scalable and profitable business.

    White also highlighted the fact that sponsored updates are now almost half of the segment and growing in excess of 100 percent year-over-year. However, early sales solutions trends are "encouraging," but the company seems to be still optimizing the product while at the same time expanding existing customer contracts and landing "large" new ones.

    Finally, beyond sales solutions, the rest of the intermediate and long-term product pipeline appear to be "promising."

    Shares remain Outperform rated with an unchanged $278 price target.

    Elsewhere On The Street

  • Analysts at KeyBanc maintained an Overweight rating with a price target raised to $280 from a previous $250.
  • Analysts at Piper Jaffray maintained an Overweight rating with a price target raised to $287 from a previous $240.
  • Image Credit: Public Domain

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