Last May, I said LinkedIn (LNKD) was beginning to look unsociable. I thought the company needed to find more ways to grow.
While the stock didn't get down to my $120 target price, the shares have spent about 10 months in the doghouse. It is only recently LinkedIn began to outperform the S&P 500.
The company reports fiscal first-quarter 2015 earnings on April 30 and I thought I would take a look at investor's expectations, especially since the stock is higher on a wave of optimism.
LinkedIn ended 2014 with sales of $2.2 billion, up 45%. On a non-GAAP basis -- which is Wall Street speak for the company didn't make any money -- earnings per share were $2.02 a share.
In terms of metrics, the company ended the fourth quarter with 347 million members, 93 million unique visiting members and 30 million page views.
Investors are expecting big things from the company's new Sales Navigator product. In the fourth quarter, Sales Navigator accounted for 29% of premium subscriptions (up from 25% in Q3). Sales Navigator helps sales people develop warm sales leads by using LinkedIn's networking abilities. Sales people can get an introduction to potential customers through LinkedIn's social networking features. In the fourth quarter, Sales Navigator generated $35 million in revenue and is on track to produce about $140 million annually.
The company added 2,957 Talent Solutions customers in Q4, up 21%. Talent Solutions allows employers to use LinkedIn's networking abilities to find new employees.
Management has a history of conservative guidance and told investors to expect first-quarter revenues of $618 million to $622 million and adjusted EBITDA of $152-154 million. Non-GAAP earnings per share is expected to be about $0.53.
If LinkedIn were to exceed the first-quarter estimate and produce more than $630 million in revenue, the growth rate would only be in the mid-30s. Next year, analysts think LNKD will only grow mid-20s. While 35% revenue growth this year and 25% growth next year is nothing to sneeze at, it's down substantially from just a few years ago. As early as 2010, the company was growing the top line 110%.
With a gross margin of 88%, it's hard to understand why this company doesn't make money. LinkedIn only has a 1% operating margin. That's it. One percent.
Out of an estimated $2.9 billion in revenue for 2015, LinkedIn is likely to blast through all but $31 million. In other words, they are going to spend $2,869,000,000. Shouldn't they be printing money? It's all FREE user-generated content. Users type their profiles into a database and LinkedIn serves up a bunch of webpages. Contrast that with Facebook (FB). Facebook has an 81% gross margin and a 44% operating margin. Money pours down from the sky at Facebook. Why can't LinkedIn make money? Until I get a good answer, I'm staying away from this stock.