3 Reasons LinkedIn Is Still Worth a Look

Here we go again. LinkedIn (NYSE: LNKD  ) recently announced another strong quarter, and year, almost across the board. Each of LinkedIn's three primary revenues sources grew, earnings jumped, and more of the same is expected this year. So, naturally, LinkedIn shares took a beating yesterday, dropping nearly 8% in pre-market trading, before ending the day down a little over 6%.

What gives? Just like IBM a few weeks ago, LinkedIn's stock suffered the all-too-familiar "problem" of missing analyst estimates. The fact this quarter's revenues are expected to range between $455 million and $460 million was, apparently, depressing enough to cause a sell-off since analysts were guesstimating LinkedIn would generate $471 million. LinkedIn's 2014 annual revenue forecast of $2.02 billion to $2.05 billion also "missed" average analyst expectations of $2.16 billion.

Reason No. 1 LinkedIn's a buy
How does a long-term growth investor reconcile LinkedIn's missing revenue estimates? By reviewing what really matters: How this quarter and year compares to 2013. Somewhat lost in yesterday's sell-off was the fact that LinkedIn's $455 million to $460 million in expected revenues this quarter compares to 2013's Q1's $324.7 million. Even at the low end, LinkedIn should generate revenues in Q1 of this year that are 40% higher than the year-ago period, and its stock price gets punished for that?

A sell-off after posting outstanding results, and an expectation of a 40% pop in year-over-year revenues for the quarter, not to mention annual revenues for 2014 that should come in about 32% higher than last year, should have long-term growth investors salivating. If LinkedIn was a sound growth opportunity before yesterday, its sell-off is reason number one it's an even better buy now.

Another upside
Similar to social media giant Facebook (NASDAQ: FB  ) , LinkedIn is gaining traction in mobile -- 41% of user traffic is now via a mobile device -- and the introduction of new apps and features like its "sponsored updates" and "showcase" pages are already beginning to drive enhanced advertising revenue. Facebook is further along the mobile path, as it demonstrated last quarter, after announcing that a whopping 945 million of its 1.23 billion monthly average users were mobile. Not surprisingly, Facebook's revenues and earnings have shot through the roof, and mobile has played a key part in its success.

But don't be surprised to see the same kind of mobile success Facebook has enjoyed come LinkedIn's way. Already, LinkedIn is making significant strides in attracting and retaining mobile users, jumping from a paltry 8% three years ago to the aforementioned 41% last quarter.

But wait -- there's more
The third reason LinkedIn should be on your growth investment watch list, if not a part of your portfolio, was demonstrated when CEO Jeff Weiner and team announced it was acquiring Bright, a data-analysis solution that matches job hunters with employers. In addition to the technology, the Bright deal, which is expected to close this quarter, also includes some engineering and product talent LinkedIn can leverage.

What's really telling about the Bright acquisition isn't simply what it will bring to LinkedIn's product suite; it's what it says about Weiner and team. Some pundits raised concerns that the $120 million deal for Bright will translate to a year of spending, which will dampen LinkedIn's top and bottom lines. But that's nonsense, except for day traders and short-term investors. Long-term, LinkedIn shareholders should have a similar mind-set as its management -- plan for the next three to five years, not three to five weeks, or even months. Weiner is investing today to drive growth for years to come, and LinkedIn will be better for it.

Final Foolish thoughts
LinkedIn naysayers will often cite its ridiculously high valuation: It's trading over 900 times trailing earnings, after all. But, just as with its recent sell-off despite posting outstanding results, the over-valued argument doesn't tell the whole LinkedIn story. Going forward, LinkedIn is trading at about 82 times 2014 earnings expectations; certainly not out of range for a high-end growth stock.

Continued growth but missing estimates, diversified revenue streams including its transition to mobile, and a management team willing and able to invest with the next three to five years in mind, are compelling reasons to get onboard LinkedIn's train. And the timing couldn't be better for long-term Fools.

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  • Report this Comment On February 10, 2014, at 10:12 AM, SocialMedianDown wrote:

    LNKD P/E is 999.

    FS P/E is 105

    LNKD user growth is only 10 millions whole

    Quarter and user base is so small to begin with.

    FS 1.3 billions

    Author on purpose skip all the fact about slower growth on almost every matrix

    You tell me which one is buy?

  • Report this Comment On February 10, 2014, at 10:19 AM, SocialMedianDown wrote:

    Also, I am professional myself. I keep getting email from LinkedIn pretending from my friends want to connect. I call my friends none of them do that. We are all very busy with our work and have time to waste. If we need to talk to each other, we pickup phone or send message from Facebook or Google Messaging.

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