Wall Street Analysts Remain Bullish on LinkedIn, Investors Not So Sure

Friday, 03 May 2013 11:58 AM

 

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Wall Street took a long-tem view on LinkedIn Corp.'s prospects on Friday, with at least six brokerages raising their price targets despite the company's slower-than-expected shift to a marketing model based on selling ads on news feeds.

LinkedIn on Thursday forecast a weaker-than-expected current quarter, even after first-quarter results blew past estimates.

The company's shares were down about 8 percent in early trading after company executives suggested that a revamped mobile app and other new products designed to keep smartphone users engaged would not deliver on advertising growth as quickly as anticipated.

However, analysts said the disappointing news had not changed the strong fundamentals of the social network for professionals.

"We found nothing thesis-changing in the quarter and would encourage investment on the 10 percent after hours pull-back," Evercore Partners analysts Ken Sena and Andrew McNellis wrote in a research note.

Evercore maintained its "overweight" rating and $210 price target on the stock, which closed at $201.67 on Thursday, while lowering its estimate for revenue from marketing by $85 million for the year.

LinkedIn's Marketing Solutions unit contributed $74.8 million to overall revenue in the first quarter, or about 23 percent of the total.

J.P.Morgan, BMO Capital Markets, Northland Capital, Cantor Fitzgerald, Wedbush Securities and Canaccord Genuity all raised their price targets on the stock, by as much as $50. There were no target cuts among brokerages tracked by Thomson Reuters.

Analysts said the marketing shift aside, LinkedIn was poised for further growth due to recurring subscription revenue streams, vast addressable markets and attractive margins.

LinkedIn has introduced a series of enhancements recently, including news content for mobile devices.

But its mobile-oriented "newsfeed" ads, or promotions that appear directly in a users' stream of content, remain in testing and will only be introduced gradually.

"Given the success of Facebook's sponsored content program, we expect a rapid ramp in Marketing Solutions revenue," Needham & Co. analyst Kerry Rice said, referring to LinkedIn's advertising strategy. "Unfortunately, the rollout will be gradual, which should result in slower Marketing Solutions growth for the balance of 2013."

As consumers shift away from PCs, companies such as LinkedIn, Facebook Inc. and Google Inc. are stepping up efforts to better reach mobile users. More than a quarter of LinkedIn's Web traffic now comes from its mobile app.

And LinkedIn is ahead of the game in distinguishing between tablets and smartphones, creating different strategies for each, BMO Capital Markets analysts said.

As of Thursday's close, LinkedIn's stock was trading at roughly 118 times estimated 2013 earnings per share.

The average price-earnings ratio for the sector is about 19, according to StarMine.

LinkedIn shares gained about 76 percent this year up to Thursday's close.

© 2014 Thomson/Reuters. All rights reserved.

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