- DISPLAY EVAPORATES? IR confirmed that the $34M organic guidance cut was essentially all due to display advertising, citing lack of visibility. Note that display advertising generated $48M in 1H15 revenues, so by cutting 2015 guidance by $34M, mgmt is essentially assuming that display revenues evaporates overnight in 2H15, which obviously doesn't make sense since display was flat q/q in 2Q15, and 4Q is a seasonally strong quarter. In short, mgmt just wanted display ad revenues out its guidance.
- LYNDA GROWING FASTER THAN EXPECTED: Mgmt suggested during the Lynda acquisition announcement that Lynda generated $150M in 2014 revenue, "growing at about mid-20% range". According to data from the 10-Q, Lynda on a stand-alone basis generated $87M in 1H15 revenue (38% y/y growth). However, we're not sure how that relates to Lynda guidance because of the unknown acquisition accounting impact on deferred revenues.
- SALESFORCE RAMP CONTINUES: According to the 10-Q, Sales & Marketing headcount grew 61% y/y in 2Q15, an acceleration from 51% growth in 1Q15. IR suggested that ~30% of its ~500 acquired Lynda employees were S&M personnel; after backing that out, we estimate that S&M headcount grew 52%-54% y/y. We see the ongoing salesforce ramp as an investment given the improving selling environment (see note below for detail and tracker).
- ARPU IMPACT MOSTLY FX: IR attributed the 2Q15 slow down in ARPU primarily to Fx, which hampered revenues by 3%. That is the same percentage mgmt stated for 1Q15, so that can't fully explain the slowdown. We suspect that the surge in net LCS account growth also contributed to the slowdown. We did learn that 2Q15 net LCS account growth tilted toward SMBs, which could be a slight headwind to ARPU. However, Fx comps ease in 2H15.
- NET-NET, COMES DOWN TO MGMT: No incremental changes to our thesis post 10-Q and IR. We continue to see upside to 2015 estimates from the ongoing investment in its salesforce into an improving selling environment, which we see as a coiled spring. However, a sheepish mgmt team remains the concern. There can't be any ambiguity to guidance on its next print after crying wolf two quarters in a row. We have relayed that message to company; hopefully it gets that this time around.
See the note below for supporting detail/analysis on our long thesis. Let us know if you have any questions or would like to discuss further.
LNKD: New Best Idea (Long)
07/14/15 08:00 AM EDT