LinkedIn Stock Now Deserves A Higher Multiple, Says MKM's Sanderson

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  • LinkedIn Corp LNKD shares are up 9 percent year-to-date, although they are trading meaningfully below their 52-week high of $276.18.
  • MKM Partners’ Rob Sanderson maintained a Buy rating on the company, with a price target of $310.
  • LinkedIn is more like a SaaS company than an Internet company, although its shares are trading substantially below its SaaS peers, Sanderson mentioned.

Analyst Rob Sanderson said that LinkedIn is “a webscale social network on the consumer-facing side (like an Internet company), but sold primarily as an enterprise solution by a direct salesforce under a recurring subscription model (like a SaaS company).”

As much as 75 percent of LinkedIn’s revenue is contributed by recurring subscriptions, with 62 percent of total sales coming from direct enterprise sales efforts. “This is much more like a SaaS company than an Internet company,” Sanderson pointed out.

LinkedIn announced its Q3 results and guidance substantially ahead of expectations, across almost all key metrics, especially profitability.

MKM’s revenue estimates for 2015 and 2016 have been raised from $2,949.0 million to $2,985.4 million and from $3,863.3 million to $3,897.2 million, respectively. The million adj. EBITDA estimates for 2015 and 2016 have been raised from $72.2 million to $749.4 million and from $988.9 million to $1,059.1 million, respectively.

Although LinkedIn’s shares trade at a premium to Internet majors, they trades significantly below SaaS leaders. “With controversy largely removed by a clean beat-and-raise Q3, we expect the stock will continue to be revalued higher,” the analyst wrote.

Management has been executing well in building “strong monetization engines.” LinkedIn’s core business continues to be robust, and while the market opportunity is significant, there are no strong competitive alternatives. Sanderson added that there is “optionality in new products focused on sales, learning and B2B marketing.”

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasMKM PartnersRob Sanderson
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