THE HEDGEYE EDGE
LinkedIn (LNKD) is a company that has carved out its own identity within the social media space. LNKD’s value comes from its database of member profiles, which it has a virtual moat around it since we don’t believe another player could replicate that database at comparable scale. LNKD’s product portfolio is primarily paywalls: varying degrees of access to these profiles, for which LNKD charges premium pricing. LNKD’s average annual revenue per customer in its largest Talent Solution segment is roughly $45K.
The opportunity for LNKD currently is that it is investing in its salesforce into an improving selling environment. This investment created a near-term hiccup in the 1Q15 results, but the company is already showing improving trends in 2Q15, which we expect to continue into 2H15. Meanwhile, LNKD has bought themselves some breathing room on its overly conservative guidance on its last two earnings releases, which has come at the expense of its stock price; hence a good entry point.
INTERMEDIATE TERM (TREND) (the next 3 months or more)
We see upside to LNKD share price of $240-$270 by year end. We suspect the relatively soft guidance LNKD provided on each of its earnings releases have spooked the street, and we believe LNKD should rebound once the street realizes that management was being overly conservative - something it is infamous for.
The good thing about the soft guidance is the low expectations that accompany it. We suspect LNKD has found a near-term floor, and the fundamental upside we see in the name should be reflected in the 3Q15 earnings release.
LONG-TERM (TAIL) (the next 3 years or less)
LNKD’s core segment is Talent Solutions, with its flagship product being its Recruiter product. We have broken down LNKD’s U.S. Total Addressable Market (TAM) for this product alone, which is multiples of what it is producing currently today. That said, LNKD has a long runway for future revenue growth.
However, LNKD’s selling environment is highly dependent on the macro environment, particularly around higher trends. While the long-term opportunity is substantial, LNKD could very see some fundamental pressure in a recession. That said we remain long on a quarter-to-quarter basis, and once we see a turn in the macro, we’re getting out of the way.