LinkedIn (LNKD) Q1 Loss Narrower than Expected; View Up
Zacks Equity Research
Updated
Shares of LinkedIn Corporation LNKD gained over 8% in after-hour trade following the company reported better-than-expected first-quarter 2016 results. The upbeat full-year guidance also contributed to the rally.
Quarter in Detail
The professional networking company posted adjusted loss (excluding accretion of redeemable non-controlling interest, amortization of intangible assets and non-cash interest expense but including stock-based compensation) on a proportionate tax basis of 10 cents, much narrower than the Zacks Consensus Estimate of a loss of 28 cents per share as well as the year-ago quarter’s loss of 18 cents.
On a GAAP basis, LinkedIn incurred a loss of 35 cents per share compared with the prior-year quarter loss of 34 cents.
LinkedIn’s first-quarter revenues jumped 35% year over year to $860.7 million, which came ahead of management’s expectation of $820 million as well as the Zacks Consensus Estimate of $828 million. The year-over-year upside was majorly backed by the company’s ongoing investments in mobile, global expansion of content and jobs and the acquisitions of lynda.com and Connectifier.
Segment-wise, revenues from Talent Solutions surged 41% from the year-ago quarter to $558 million. Revenues from Marketing Solutions increased 29% on a year-over-year basis to $154 million, primarily driven by higher sponsored updates. LinkedIn garnered $149 million in revenues from Premium Subscriptions, up 22% from the year-ago tally.
LinkedIn’s cumulative member count rose 19% year over year to 433 million at the end of the first quarter. The company witnessed a 9% year-over-year increase in unique visiting members and a 34% rise in member page views.
The company’s mobile engagement was noteworthy. As per LinkedIn, “Members are engaging at record levels with the more relevant and comprehensive feed. During the quarter, viral actions increased more than 80%, daily shares were up nearly 40%, and traffic to third-party publishers grew more than 150%.” Apart from this, the company witnessed a 50% year-over-year increase in job applicants through its mobile app.
Geographically, LinkedIn’s revenues from the U.S. increased 35.2% on a year-over-year basis. International revenues which comprise Other Americas (Canada, Latin America and South America), the Europe, Middle East & Africa (EMEA), and Asia-Pacific (APAC) regions grew 34.5% to $334.2 million. Meanwhile, revenues from Other Americas, EMEA and APAC increased 19.2%, 39% and 32.5%, respectively.
Total costs and expenses in the quarter rose 41.5% year over year to $926.9 million. As a percentage of revenues, total costs and expenses came in at 107.7% compared with 102.7% a year ago.
However, on an adjusted basis (excluding amortization of intangible assets but including stock-based compensation), the company posted an operating loss of $18.9 million in the quarter under review as against a breakeven in first-quarter 2015.
Balance Sheet & Cash Flow
LinkedIn ended the quarter with cash, cash equivalents and marketable securities of $3.160 billion compared with $3.119 billion in the preceding quarter. During the quarter, the company generated approximately $252.2 million in cash flow from operations compared with $165.1 million in first-quarter 2015.
Guidance
Encouraged by its impressive first-quarter performance, LinkedIn raised its outlook for the full year. The company now expects revenues in between $3.65 billion and $3.70 billion (mid-point $3.675 billion), up from the previous guidance of $3.60 billion to $3.65 billion (mid-point $3.625 billion). This is also close to the Zacks Consensus Estimate of $3.682 billion. The new guidance range reflects year-over-year growth of 22% to 24%.
Adjusted EBITDA is now expected between $985 million and $1.005 billion as against the earlier guidance of $950 million to $975 million. Similarly, the guidance for non-GAAP earnings per share has been raised to $3.30 to $3.40 from the previous $3.05 to $3.20.
For the second quarter too, LinkedIn issued an encouraging revenue and earnings outlook. For the quarter, the company expects revenues in the range of $885 million to $890 million (mid-point $887.5 million), higher than the Zacks Consensus Estimate of $882 million. Non-GAAP earnings for the second quarter are projected within 74 cents to 77 cents per share.
Our Take
LinkedIn, a leader in the emerging online professional networking segment, enjoys increasing popularity and steady growth worldwide. The company started 2016 on a strong note, posting better-than-expected results in the first quarter. Moreover, LinkedIn witnessed an impressive 19% increase in its cumulative member count. Additionally, we are encouraged by the 30–50% top-line growth recorded over the past few quarters by this Zacks Rank #3 (Hold) company.
Moreover, the company’s upbeat guidance for the full year and strong outlook for the second quarter are encouraging.
LinkedIn’s traction in the mobile segment is particularly impressive, primarily owing to the launch of its applications for Apple’s AAPL iPhones and Android-based smartphones. Synergies from acquisitions — Lynda.com, Newsle and Bizo — are also expected to garner additional earnings through targeted marketing strategies over the long term apart from enhancing user experience.
We believe that LinkedIn’s initiatives to increase advertising revenues through product launches and partnership programs are praiseworthy. Advertisers are also taking note of the company’s growing user base, in our view.
LinkedIn’s investments in strategic products are necessary, in our view, as other companies like Facebook FB and Twitter TWTR are looking to expand in the professional networking space.
Nonetheless, continued investments to provide new and improved products and services might affect LinkedIn’s profits in the short run. However, these investments will drive member growth and user engagement over the long term.
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