Avondale Lifts LinkedIn's Target To $140, Though Some Slower Expectations Exist

LinkedIn Corp LNKD beat 1Q revenue guidance, but outlook continues to reflect deceleration. Avondale Partners' Randle G. Reece maintained a Market Perform rating for the company, while raising the price target from $120 to $140. The analyst mentioned that the 1Q beat was not driven by any dramatic change in business momentum.

LinkedIn's 1Q results indicated that the company had “excessively slashed” its quarterly guidance, analyst Randle Reece said. He added, “The company beat its overly harsh 1Q top-line guidance by 5%, but a notable deceleration is still visible in our LinkedIn outlook.”

The estimate for revenue, ex-Learning, has been raised by 3 percent for FY16-FY17. The earnings estimates have been raised to reflect improved operating leverage in 2016, Reece added. The profit margin forecast for FY17 has been lowered to reflect increased spending on growth.

Segments-Wise Expectations

There are continued concerns related to Hiring Solutions, which is LinkedIn's core value driver. The analyst expects Hiring revenue to grow only 22 percent in FY16, 18 percent in FY17 and 15 percent in FY18, as compared to 54 percent in 2014 and 33 percent in 2015.

The prospects of Marketing Solutions are restricted by an uncertain environment for digital advertising in general. Sponsored Updates contributed 56 percent of segment revenue in 1Q16. Other ad revenue declined modestly in 2014-15, and is expected to continue this downtrend in 2016-2018, Reece commented.

Learning & Development has been tracking well ahead of estimates. The analyst expects the Learning segment to record a CAGR of 35 percent over the next three years.