Shares of LinkedIn Corp. (NYSE: LNKD) were off as much as 8 percent after the world's largest professional network guided fourth quarter revenue below consensus. The company said it expects fourth quarter revenue to range between $415 million and $420 million while analysts predicted $438.08 million.
For the September to December period, LinkedIn sees adjusted EBITDA of $98 million to $100 million, down from Street estimate of $110 million. Adjusted EBITDA for the third quarter was $92.8 million, or 24 percent of revenue, compared to $56.0 million for the third quarter of 2012, or 22 percent of revenue.
Should investors be concerned about the fourth quarter outlook? The answer is a big NO as the company's fundamentals are pretty strong. In other words, the ship is steady.
This was the third consecutive quarter the company guided both revenue and adjusted EBITDA to below Street forward estimates (after a year of consecutive raises above to levels above Street estimates). In all probabilities, the outlook appears conservative.
"In our view, this guidance will again prove to be conservative," UBS analyst Eric Sheridan wrote in a note to clients.
There is nothing in this earnings report that changes one's fundamental thesis and the secular growth potential that sits inside LinkedIn's mix of businesses. Unlike many social networking peers, LinkedIn's model successfully pairs monetization with disruption, which should support high growth into the future.
LinkedIn projects that the market for global staffing services is $85 billion, with $27 billion readily addressable today. This compares to just $524 million of Talent Solutions revenues generated in 2012.
As a result, LinkedIn bulls could use the weakness as a buying opportunity as the there was no significant change in the story. As the mobile strategy begins to unfold, LinkedIn is now seeing mobile usage pass 50 percent in countries like Turkey and Singapore and is hoping global usage passes the "mobile moment" m! arker sometime next year.
Apart from slowly rolling out its mobile monetization plans, the company has invested over the past year in developing new products that have led to higher user engagement and better advertising opportunities. The company projects its online advertising opportunity is $25 billion, which compares to just $258 million of Marketing Solutions revenue in 2012.
Meanwhile, broader drivers appear on track with Sponsored Updates (the first mobile monetization product) rolling out and University Pages already numbering 1,500 schools after its August launch.
In October, LinkedIn launched several new mobile products, including a re-imagined iPad app; Intro for iPhone, transforming the mobile email experience; a new Pulse app to deliver relevant news and insights with LinkedIn integration; and Recruiter Mobile for customers of the flagship Talent Solutions Recruiter product.
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Moreover, with more salespeople than recruiters using LinkedIn, the opportunity around Sales Navigator will intensify for investors. The first of three new data centers has come online in Virginia; duplicative costs should continue into 2014 and then subside as the second and third new facilities come online and legacy capacity is retired.
The company has lifted its full year revenue guidance to about $1.5 billion from the prior estimate of $1.455 billion to $1.475 billion. Analysts currently expect revenues of $1.51 billion for the full year.
The future revenue growth would be driven primarily by Talent Solutions unit, aided by continued customer additions and higher revenue per customer.
The pricing increases of Talent Solutions, which recorded revenue growth of 62 percent to $224.7 million in the third quarter, should mildly support fourth quarter results, but 2014 will see the majority of the benefits given the bulk of customer renewals are ! in the fi! nal quarter of 2013.
"We continue to call for strong growth in Premium Subscriptions, with an expectation of 49 percent YoY growth, driven by continued gains in engagement and greater contributions from Sales Navigator," Sheridan said.
Mountain View, California-based LinkedIn reported third-quarter loss of $3.4 million or 3 cents per share, compared to net income of $2.3 million or 2 cents per share last year. Adjusted earnings for the quarter were 39 cents per share, topping Street view of 32 cents. LinkedIn's revenue for the third quarter jumped 56 percent to $393.0 million while thirty analysts had a consensus revenue estimate of $385.41 million for the quarter.
The only concern for LinkedIn shares is its valuation, which appears full at the current levels (111 times its 2014 consensus estimate). The stock has outperformed S&P 500 91 percent year-to-date.
"Given LinkedIn's full valuation multiples (~45x 2014E EBITDA) & recent outperformance, we see little upside to the stock from current levels unless Street estimates move higher from current levels," Sheridan added.
However, from a fundamentals perspective, investors should consider the current weakness as a buying opportunity.
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