LinkedIn Corp. LNKD is slated to report fourth-quarter 2015 results on Feb 4. Last quarter, the company incurred a loss of 6 cents per share, much narrower than the Zacks Consensus Estimate of a loss of 32 cents.
Let’s see how things are shaping up for this announcement.
Factors to Consider
LinkedIn boasts worldwide popularity in the emerging online professional networking segment in addition to steady growth. The company reported better-than-expected third-quarter results that also improved year over year. The company witnessed 20% growth in cumulative members and issued encouraging fourth-quarter and full-year guidance.
Last year’s acquisition of Lynda.com, an online learning company, put LinkedIn at the forefront of the online education sector, which was a key missing piece in its portfolio. Furthermore, the buyout added new talent, technology and products to the company’s growing portfolio enabling it to deliver better services. This should reflect on the fourth-quarter results.
The professional networking behemoth’s traction in the mobile segment is particularly encouraging primarily supported by application launches for Apple’s AAPL iPhones and Android-based smartphones. The acquisitions of Newsle and Bizo will not only enhance user experience but also garner additional dollars through targeted marketing strategies in the to-be-reported quarter.
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.
We also believe that the investments in strategic products and services are necessary for LinkedIn as companies like Facebook Inc. and Twitter are testing the waters in the professional space.
Nonetheless, continued investments might affect LinkedIn’s profitability in the short run. However, investments will drive member growth and user engagement over the long haul. We are encouraged by the 30–50% top-line growth recorded over the past few quarters.
Earnings Whispers
Our proven model does not conclusively show that LinkedIn is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 are pegged at break-even earnings.
Zacks Rank: LinkedIn carries a Zacks Rank #2 which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a couple of stocks which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Harris Corp. HRS, with an Earnings ESP of +2.21% and a Zacks Rank #2.
MSCI Inc. MSCI, with an Earnings ESP of +1.70% and a Zacks Rank #3.
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