LinkedIn (LNKD) Beats Q2 Earnings; Ups FY14 Revenue Outlook

Shares of LinkedIn (LNKD) jumped 7.51% in after-hours trade on Thursday after the professional networking company’s adjusted earnings (including stock-based compensation but excluding other one-time items) per share of 4 cents beat the Zacks Consensus Estimate of a breakeven.

LinkedIn’s second-quarter revenues increased 46.8% year over year to $533.9 million, which not only surpassed the Zacks Consensus Estimate of $512 million but also beat management’s guided range of $500–$505 million.

Segment-wise, revenues from Talent Solutions were up 48.5% from the year-ago quarter to $322.2 million. Revenues from Marketing Solutions increased 44.4% on a year-over-year basis to $106.5 million, primarily driven by higher sponsored updates. LinkedIn garnered $105.2 million in revenues from Premium Subscriptions which increased 44.1% on a year-over-year basis.

LinkedIn’s cumulative members increased 32% year over year to 313 million at the end of the second quarter. The company witnessed a 13% year-over-year increase in Unique visiting members and 22% increase in member page views in the quarter.

The company’s mobile engagement was noteworthy as mobile represented 45% of its traffic compared with 43% in the previous quarter and 34% in the year-ago quarter. LinkedIn has launched a Job Search App for Apple’s (AAPL) iPhone and SlideShare app for Android, which may have helped the increase in engagement.

Geographically, LinkedIn’s revenues from the U.S. increased 41.7% on a year-over-year basis. Revenues from the Europe, Middle East & Africa region grew 59.3%. The Asia-Pacific recorded revenue growth of 64% on a year-over-year basis while revenues from Other Americas (Canada, Latin America and South America) increased 32.3%.

Total costs and expenses (excluding amortization but including stock-based compensation expense) for the quarter increased 46.5% year over year. As a percentage of revenues, operating expenses were down from 96.2% to 96% with operating margins expanding from 3.8% to 4% year over year.

LinkedIn’s adjusted net profit (excluding amortization, accretion of redeemable non-controlling interest but including stock-based compensation) on a tax-adjusted basis came in at $4.6 million or 4 cents per share compared with $8.0 million or 7 cents per share reported in the year-ago quarter.

Balance Sheet & Cash Flow

LinkedIn ended the quarter with cash and cash equivalents of $645.1 million versus $508.9 billion in the previous quarter. Total deferred revenue in the quarter was $481.5 million, up from $479.6 million in the previous quarter. The company generated $128.4 million in cash flow from operations compared with $128.9 million reported in the previous quarter.

Guidance

LinkedIn provided its third-quarter and raised its fiscal 2014 outlook. For the third quarter, the company expects revenues to range between $543 million and $547 million, higher than the Zacks Consensus Estimate of $543 million at the mid-point. LinkedIn expects adjusted EBITDA in the range of $134 to $136 million. Third-quarter earnings per share are expected to be 44 cents.

For fiscal 2014, LinkedIn now expects revenues in the range of $2.14 to $2.15 billion (previous forecast $2.06 to $2.08 billion). The Zacks Consensus Estimate is pegged at $2.13 billion. Adjusted EBITDA is expected in the range of $545 to $550 million, up from the previous forecasted range of $500 to $510 million. LinkedIn expects fiscal 2014 earnings per share to be $1.80.

Our Take

LinkedIn remains a leader in the emerging online professional networking segment with increasing worldwide popularity and steady growth in the recent past. The company’s traction in the mobile segment is particularly encouraging.

Synergies from acquisitions are also expected to positively impact results over the long run. The recent 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 believe the investments in strategic products are necessary for LinkedIn as other companies like Facebook (FB) and Twitter (TWTR) are looking to expand into the professional space.

Nonetheless, continued investments to provide new and improved products and services might affect LinkedIn’s profitability. While impacting the company’s operational performance in the short run, these investments drive member growth and user engagement over the long haul. We remain encouraged by the 45–50% top-line growth recorded in the past few quarters.

Currently, LinkedIn sports a Zacks Rank #1 (Strong Buy).

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