Commentary

LinkedIn Stock Tumbles

by Erik Sass , Staff Writer, February 5, 2016

After seeming to defy the recent downward trend in social media stock prices, LinkedIn is catching up with Facebook and Twitter with a vengeance. From a recent high of $191.20 on Thursday, on Friday its price per share plunged 40% to $114.31 in premarket trading, following discouraging guidance that sent investors running for the exits. In terms of market capitalization, that’s about $10 billion that just went up in smoke.

In addition to posting a loss of $8.4 million the fourth quarter, LinkedIn predicted that total revenues for 2016 will probably come to around $3.6 billion to $3.65 billion, or 6% lower than the $3.9 billion previously forecast. For the first quarter of the year, it expects revenues of $820 million, below analyst expectations of $868 million, and earnings per share of $0.55, significantly lower than the $0.75 predicted by analysts, as reported by Bloomberg.

All this was apparently enough to cancel out a whole bunch of good news: total membership grew 19% year over year to 414 million at the end of the fourth quarter, while active monthly users increased 7% to 100 million, and total page views jumped 26% in the quarter. Mobile activity is growing at three times the rate of overall activity, and represents 57% of all traffic to the site. Revenues jumped 34% to $862 million, slightly above analyst expectations.

Considering this mostly positive context, it might seem irrational for investors to suddenly dump LinkedIn because of a modest decrease in forecast revenues and one quarter of missed earning targets. However, analysts noted that LinkedIn, like its social media peers, was trading at a very high ratio of 52 times earnings; that compares with an average earnings ratio of 20 for the S&P 500.

That means LinkedIn faced very high investor expectations across the board, a situation in which even small deviations can assume outsized importance.

While it’s not much comfort for investors, LinkedIn is in good company in the social media stock doghouse: at the time of writing, Facebook is trading at $104.35, down 9.3T% from $115.09 on February 1, while Twitter is trading at $16.02, down 49% from a peak of $31.34 in October.

linkedin, media stocks, social media, social networks

3 comments about "LinkedIn Stock Tumbles".

Check to receive email when comments are posted.

laura buege from at&t, February 5, 2016 at 2:04 p.m.
I noticed a very-late-to-the-party app update that could be a game changer and turn the tide back around. Not many contenders - I'd keep the stock, in my opinion.
Reply

Kenneth Hittel from Ken Hittel, February 5, 2016 at 3:34 p.m.

Does it not ever occur to anyone that the "analysts" might have their heads in a dark place? Not just in re: Linkedin but in re: Social Media in general?

Miller Finch from Miller Finch Media replied, February 5, 2016 at 11:41 p.m.

I agree with Kenneth. The analysts are creating their own "disasters" from pie in the sky thinking. Why are they so hardassed when it comes to social media companies? Too much venture capital creating insane expectations? This: "analysts noted that LinkedIn, like its social media peers, was trading at a very high ratio of 52 TIMES EARNINGS; that compares with an average earnings ratio of 20 FOR THE S&P 500."
Analysts need to come back to earth and temper their expectations. LinkedIn has growth and good revenues, and these Chicken Littles need to calm the heck down.