Professional networking behemoth LinkedIn Corp. LNKD is slated to report first-quarter fiscal 2015 results on Apr 30. In the last quarter, the company delivered a positive earnings surprise of 300%. Let’s see how things are shaping up for this announcement.
Factors to Consider
LinkedIn remains a leader in the emerging online professional networking segment with increasing worldwide popularity and steady growth in the recent past. LinkedIn reported encouraging results in the fourth quarter. The company also saw 25% addition in its cumulative members. Year-over-year comparisons on both counts were also favorable.
Recently, LinkedInentered into an agreement to acquire Lynda.com — an online learning company — for $1.5 billion. The acquisition of Lynda.com will put LinkedIn at the forefront of the online education sector, which was a key missing piece in its portfolio. Furthermore, the acquisition will bring in new talent, technology and products, which will add to the company’s growing portfolio. Moreover, it will enable LinkedIn to deliver better services.
LinkedIn’s traction in the mobile segment is particularly encouraging primarily due to its application launches for Apple’s AAPL iPhones and Android-based smartphones. Synergies from acquisitions are also expected to positively impact results over the long run. The acquisitions of Newsle and Bizo will not only enhance user experience but also garner additional dollars through targeted marketing strategies.
We believe that LinkedIn’s initiatives to increase advertising revenues through product launches and partnership programs are praiseworthy. Advertisers are also taking a note of the company’s growing user base, in our view.
We also believe that the investments in strategic products are necessary for LinkedIn as other companies like Facebook and Twitter are looking to expand into the professional space.
Nonetheless, continued investments to provide new and improved products and services might affect LinkedIn’s profitability in the short run. However, these investments will drive member growth and user engagement over the long haul. We remain encouraged by the 40%–50% top-line growth recorded in the past few quarters.
Earnings Whispers?
Our proven model does not conclusively show that LinkedIn is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Earnings ESP for LinkedIn is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 3 cents per share.
Zacks Rank: LinkedIn carries a Zacks Rank #3 (Hold) which when combined with an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Groupon, Inc. GRPN, with an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy)
Facebook, Inc. FB, with an Earnings ESP of +3.33% and a Zacks Rank #2 (Buy)
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