LinkedIn Earnings Fail to Impress

linkedin-earningsShares of online resume and job networking site LinkedIn (NASDAQ: LNKD) fell on Friday after the company released earnings that failed to impress.
Not helping matters was a job market report that for the second month in a row also failed to impress.
The U.S. economy produced 113,000 jobs in January. The expectations were for 190,000 jobs to be produced.
The unemployment rate did dip to 6.6% and the participation rate – an important given the number of unemployed dropping out entirely – increased. December job numbers were revised slightly higher to 75,000.
That’s two months in a row now of weaker-than-expected numbers. Even though the unemployment rate is falling, the strength of this economic recovery is clearly in question.
To be fair, much of the disappointment can be blamed on the weather. Many regions of the country are stuck frozen in a New Millennium Ice Age of sorts. In such conditions, things tend to grind to a halt.
The hope is that when spring comes, the thaw will produce greater activity to make up for lost time. Or, at least that’s what the bulls are hoping for.
As for LinkedIn, the weak economy does not help its prospects for growth. With the Federal Reserve removing stimulus in the form of reduced bond buying, a decline in economic growth is a very real possibility.
For a stock that has a premium valuation, such an environment is not conducive to appreciation. It’s the forward guidance that is hurt LinkedIn on Friday.
LinkedIn actually beat expectations on the top and bottom line, but guidance was light. Adjusted earnings for the fourth quarter came in at 39 cents per share, beating analyst estimates by a penny per share.
Revenues were $447 million in the period versus an estimate of $438 million. Revenue guidance for the first quarter missed expectations. The company sees revenue for the first three months of 2014 at $455 million to $460 million. Analysts were expecting $471 million.
This result comes on the heels of Twitter (NASDAQ: TWTR) disappointing investors and dropping hard.
Such is the life of a momentum stock. The hype can lift shares to levels that really make no sense from a fundamental value perspective.
Eventually the house of cards collapses when reality comes far from the dream. Usually the trigger is earnings. Missing estimates in one quarter does not a trend make, but it does make for a good excuse to sell, and that’s what is happening with LinkedIn dropping nearly 10%.
Analysts expect LinkedIn to grow profits by 35% in 2014. At current prices, including Friday’s drop, shares trade for 94 times 2014 estimated earnings.
That’s a steep price. This one could fall further. I’d avoid this stock for now.

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