LNKD | Thoughts into the Print (1Q16)

04/21/16 08:09AM EDT

KEY POINTS

  1. TRACKER SUGGESTS GUIDANCE BLUFF: Our LNKD JOLTS tracker improved sequentially through the first two months of 2Q16, which is expected given seasonality in LNKD's selling environment.  But as we've mentioned previously, 4Q15/1Q16 is more about magnitude than direction.  The former is fairly strong QTD, which suggest mgmt wasn’t seeing the deterioration implied by its guidance when it issued it.  As a reminder, our LNKD Talent Solutions TAM analysis suggests that the bulk of that TAM is in the upsell opportunity (ARPA); our tracker is intended to monitor that selling environment.
  2. EXPECTING SOLID BEAT/SOFT RAISE: As a reminder, LNKD’s 2016 Talent Solutions guidance translates to sharply declining ARPA and net new LCS Account growth well in excess of anything it's ever reported for either of those metrics (see note/table below).  Consensus 1Q16 estimates are also implying a considerable deceleration.  For context, we estimate that LNKD could potentially hit consensus TS estimates without signing a single new LCS account in 1Q16, which would imply a massive deceleration in salesforce productivity since its S&M headcount ended 2015 up 39% y/y (est. 33% ex Lynda).  The other factor is ARPU, which we addressed in Point 1 above.  We’re expecting a solid 1Q beat, but mgmt may not raise 2016 guidance by much more than the 1Q upside.
  3. BUT WILL THE STREET CHASE IT? A 40% drawdown on the 4Q15 print on 3x the volume of any event in LNKD's post-IPO history basically suggests an exodus.  Aside from the disaster guide, mgmt introduced a series of red flags during their 4Q15 call; most notably announcing that is was pulling the LCS account metric.  We suspect mgmt has essentially lost the Street, and it will take more than one good print to regain their trust after running over its holders on largely avoidable missteps.  That said, we suspect this earnings release will be more about what mgmt says than what it prints; a setup we’d rather avoid.  We remain on the sidelines for now. 

Let us know if you have any questions or would like to discuss in more detail.

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet 

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