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LinkedIn Earnings Preview

LinkedIn Corp. (NYSE: LNKD) will release financial results for the fourth quarter and fiscal year of 2014 on February 5, 2015, after market close. On the same day, LinkedIn will hold a conference call to discuss these financial results.

As is always the case with trading equities following quarterly results, the stock could go either way. However, I have a slight bullish bias and in my view the stock could rise towards $255 this Friday.

In the following paragraphs, I will discuss in detail what to expect and to what factors investors have to pay attention when evaluating the quarterly results.

Consensus expectations

The following table will provide an overview of consensus expectations for LinkedIn’s fourth quarter results.

Table 1: Consensus expectations (Median and High-Low range) (Source: RBC Capital, JP Morgan and Estimize)

In addition to publishing fourth quarter financial results, LinkedIn is expected to provide Q1 2015 and FY 2015 company guidance for revenue and EBITDA. Historical data suggests that reported company guidance can have a significant impact on LinkedIn’s stock performance following quarterly releases (Table 3). Because of this it is very important to know what the consensus expectations are for LinkedIn’s revenue and EBITDA guidance. An overview of median consensus guidance expectations is provided in Table 2.

Table 2: Median consensus expectations for Q1 2015 and FY 2015 guidance (Source: RBC Capital)

As one can deduce from table 2, consensus is predicting 37% revenue growth guidance in Q1 2015 and 34% revenue growth for FY 2015. For earnings, consensus is predicting a 42% year-over-year increase. Any significant disparity in company guidance and consensus expectations will most probably have a significant impact on the performance of LinkedIn stock ($LNKD) in the trading days following the quarterly earnings release.

Historical performance of LinkedIn earnings

Looking at the data we can formulate two scenarios for $LNKD performance following Thursday’s quarterly results:

Scenario 1: LinkedIn beats consensus in all areas including revenue, earnings and company guidance. In such a scenario, we can expect the $LNKD to trade significantly higher. Out of the 5 previous occasions when this was the case, $LNKD rose 80% of the time.

Scenario 2: LinkedIn beats consensus on earnings and revenue, but disappoints on company guidance. If this where the case, I expect $LNKD to trade materially lower. Out of the 5 previous occasions when this was the case, $LNKD fell 80% of the time.

$LNKD performance after the reporting of Q3 2014 results is quite notable. Even though reported figures and company guidance missed consensus estimates, the stock soared in the days that followed. This means that disappointments in earnings and revenue, do not necessarily result in a downward move for the stock price. 

As was mentioned previously, the historical data suggest that reported company guidance can have a material impact on stock performance. As such, speculators are advised to pay close attention to reported company guidance when determining their position in $LNKD.

LinkedIn key points of interest

In addition to headline results and company guidance, market participants will focus on the following issues:

Talent Solutions

The Talent Solutions service is the largest source of revenue for LinkedIn’s business units, as such it is the most important segment investors will scrutinize. The most important metric for the Talent Solutions service is the number of corporate customers, which remains a key indicator for this segment’s revenue growth. For Q4 2014, we can expect reported Talent Solutions revenue between $353 and $363 million.

Historical metrics and revenue for the Talent Solutions segment is provided in Figure 1.

Figure 1: Talent Solutions revenue and metric trends (Source: LinkedIn quarterly reports, Foresight Investor)

Marketing Solutions

The most important metrics for the Marketing Solutions unit are the number of page views and the number of unique visitors, as these two metrics provide insight into user engagement. Expect Q4 2014 Marketing Solutions revenue to come in at roughly $133 million.

Historical metrics and revenue for the Marketing Solutions segment is provided in Figure 2.

Figure 2: Marketing Solutions revenue and metric trends (Source: LinkedIn quarterly reports, Foresight Investor)

Premium Subscriptions

The most important metric for the Premium Subscriptions service is the number of registered members. Expect Q4 2014 Premium Subscriptions revenue of roughly $117 million.

Historical metrics and revenue for the Premium Subscriptions is provided in Figure 3.

Figure 3: Premium revenue and metric trends (Source: LinkedIn quarterly reports, Foresight Investor)