LNKD: Notes from 10-Q & IR

Takeaway: Post-print color from the 10-Q & IR below. Fundamental long thesis in tact, but a sheepish mgmt team remains the risk.

KEY POINTS

  1. 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.  
  2. 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.
  3. 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).
  4. 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.
  5. 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.

 

Hesham Shaaban, CFA


@HedgeyeInternet 

  

LNKD: New Best Idea (Long)
07/14/15 08:00 AM EDT
[click here]


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more