Professional networking behemoth LinkedIn Corporation LNKD posted a loss in second-quarter 2015, which compared favorably with the Zacks Consensus Estimate. Revenues also beat the same.
The company’s shares however tanked nearly 4.8% in after-hours trade yesterday in response to the quarterly loss as well as aweak third-quarter revenue outlook.
The 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 30 cents per share as againstearnings of 4 cents in the year-ago quarter. The quarterly loss was howeversignificantly narrower than the Zacks Consensus Estimate of a loss of 52 cents per share.
Quarter Details
LinkedIn’s second-quarter revenues increased 33.38% year over year to $711.7 million, which came ahead of management’s guided range of $670 to $675 million. The year-over-year top-line growth was mostly backed by the company’s ongoing investments in mobile, global expansion of content and jobs and acquisition of lynda.com. Moreover, revenues surpassed theZacks Consensus Estimate of $690 million.
Segment-wise, revenues from Talent Solutions were up 38% from the year-ago quarter to $443 million. Revenues from Marketing Solutions increased 32% on a year-over-year basis to $140 million, primarily driven by higher sponsored updates. LinkedIn garnered $128 million in revenues from Premium Subscriptions, up 22% on a year-over-year basis.
LinkedIn’s cumulative member count increased 21% year over year to 380 million at the end of the second quarter. The company witnessed a 16% year-over-year increase in unique visiting members and a 37% rise in member page views in the quarter.
The company’s mobile engagement was noteworthy as mobile represented over 52% of the unique visitors compared with 50% in the previous quarter.
Geographically, LinkedIn’s revenues from the U.S. increased 39.9% on a year-over-year basis. Revenues from the Europe, Middle East & Africa region increased 25.1%. The Asia-Pacific region recorded revenue growth of 28.2% year over year while revenues from Other Americas (Canada, Latin America and South America) increased 25.1%.
Total costs and expenses for the quarter increased 52.5% year over year to $792.9 million. As a percentage of revenues, operating expenses came in at 111.4% compared with97.4% reported in the year-ago quarter.
Due to higher operating expense, the company posted an operating loss of $81.1 million inthe quarter versus adjusted operating income of $14.1 million reported in the year-ago quarter.
Further, the company posted an 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 $37.1 million or 30 cents per share as against income of $4.6 million or 4 cents per share in the year-ago quarter.
Balance Sheet & Cash Flow
LinkedIn ended the quarter with cash and cash equivalents of $450.9 million compared with$1.02 billion in the previous quarter. Total deferred revenue was $629.7 million, up from $585.8 million in the last quarter. The company generated $225.6 million in cash flow from operations compared with $165.1 million reported in the earlier quarter.
Guidance
For the third quarter, LinkedIn expects revenues within $745 million to $750 million.The Zacks Consensus Estimate is pegged at $750 million. The company expects adjusted EBITDA to be roughly in the range of $146 million to $148 million. Third-quarter non-GAAP earnings per share are expected to be approximately 43 cents.
The company expects full-year revenues to be approximately $2.94 billion compared with its previous forecast of $2.90 billion. The new guidance is also higher than the Zacks Consensus Estimate of $2.92 billion.
Adjusted EBITDA is expected to decline nearly $665 million compared withthe earlier projection of $630 million. Non-GAAP earnings per share for 2015 are expected to be $2.19 per share compared withthe previous guidance of $1.90 per share.
Our Take
LinkedIn, a leader in the emerging online professional networking segment, enjoys increasing worldwide popularity and has been growing steadily. The company saw a 21% increase in its cumulative members in the reported quarter. Although the bottom line was disappointing, we are impressed with the top line.The company however provided a tepid third-quarter revenue guidance.
LinkedIn’s traction in the mobile segment is particularly encouraging, primarily due to the launch of its applications 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.
LinkedIn’s investments in strategic products are necessary, in our view, as other companies like Facebook FB and Twitter TWTR are also looking to expand into the professional networking 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 30%–50% top-line growth recorded in the past few quarters.
Currently, LinkedIn has a Zacks Rank #3 (Hold).
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