LinkedIn Corp shares were down strongly after the firm’s earnings for the three months through June emerged after the market closed on Thursday July 30. Ken Sena of Evercore downgraded the firm on the back of the earnings. He said that he needed to see “tangible signs of growth” before recommending his clients buy shares in the social network.
LinkedIn reported earnings per share of 55 cents for the three months on revenue of $712m. Wall Street was looking for earnings of 30 cents on sales of $679.8m. The fall in shares came from a slow down in the firm’s core business. The better-than-thought earnings numbers were down to accounting rather than core growth.
LinkedIn buys an earnings surprise
Mr. Sena said that “an accounting benefit pertaining to the company’s Lynda acquisition contributed to a result above the high-end of the company’s guidance range.” Lynda.com is an online education portal that LinkedIn acquired for $1.5B back in April.
Mr. Sena lowered his price target on shares in the firm to $220, down from $250, and lowered his rating on the firm from Buy to Hold. On this morning’s pre-market shares were reacting strongly to the firm’s earnings and this morning’s downgrades. At time of writing shares were selling for $212.55, down more than 6 percent from Thursday’s close.
Jeff Weiner, the firm’s CEO, summed up the three months through June, saying LinkedIn “continued to invest in our long-term strategic roadmap and began integrating the acquisition of lynda.com that closed during the quarter.”
Mr. Sena said that “steep deceleration in the company’s 2Q sequential user growth” was more of a worry than poor growth in other areas of the business. He said that slowing user growth, combined with lower sales from display ads and compressing margins were reason enough to take a Buy rating off of the shares and “move to the sidelines.”
Some hope ahead for LinkedIn
John Blackledge of Cowen and Company saw fit to keep his Outperform rating on LinkedIn shares. His price target still sits at $260, unchanged on the back of the earnings report. Mr. Blackledge said that the “sole driver is the drop off in premium Display advertising.”
That fall, which is the biggest source of the bear mood on Wall Street this morning, does not affect Mr. Blackledge’s long term forecast for the firm. He sees the numbers in premium display getting much worse in the second half of the year as LinkedIn “is pivoting salesforce focus to Sponsored Updates.”
That business did well in the second quarter. It showed growth of around 90 percent, and made up about 45 percent of total sales in the Marketing Solutions segment of the firm’s business.
It’s clear that most of the traders in out-of-hours action agree more with Mr. Sena than with Mr. Blackledge. LinkedIn shares are now trading for much less than they were at the start of the year. Shares, if they open at the same level as they were trading at early this morning, will hit lows not seen since October of 2014 on Friday morning.