LinkedIn Corp's Earnings: What Should Investors Expect?

The social networking company reports earnings in the wake of big Facebook news. What should investors watch for in LinkedIn's first-quarter earnings?

Apr 30, 2014 at 12:30PM

LinkedIn (NYSE:LNKD) will report first-quarter earnings on Thursday, May 1. Shares of the company have dropped over 16% in the past week as the market turned on social media investments. But, LinkedIn has consistently exceeded earnings estimates and has an easy-to-grasp monetization method. LinkedIn also recently announced new updates to its advertising methods, but will Facebook's (NASDAQ:FB) stellar ad growth leave its smaller competitor in the dust? 

Here's what investors need to know for the first-quarter report. 

Estimates to beat 
Analysts estimate revenue of $466 million and $0.35 EPS. LinkedIn has beaten estimates for both metrics over the past five quarters. The company's own guidance for the quarter put revenue in the $455 million-$460 million range.

3 segments to watch
LinkedIn recently announced the addition of two new types of Certified Marketing Platforms, which allow companies to utilize easier tools for building marketing campaigns through the networking site's platform.  

This was a notable move based on how LinkedIn earns money. The company's fourth-quarter revenue broke neatly into three key segments -- talent solutions, marketing solutions, and premium subscriptions -- in decreasing order of importance.

Here's a look at the historic performance of these segments: 

Linkedin Revenue

Source: LinkedIn 

Talent solutions offers tools to help companies use LinkedIn for hiring purposes. The segment accounted for over half of fourth-quarter revenue at about $246 million.  

Marketing solutions brought in advertising revenue of $113 million last quarter through a combination of display ads and sponsored messages. The new Certified Marketing Platforms will apply to this segment in future quarters and includes the certification of a group of content providers including The Atlantic, Bloomberg, and CBS Interactive.  

Premium subscriptions trailed behind the other fourth-quarter segments with $88 million in revenue. Premium subscriptions come from members, usually job hunters or networkers, who want access to additional services such as the ability to message someone without first establishing a direct connection.

Most of LinkedIn's money comes from companies looking to hire and/or advertise. But, the number of members, both free and paid, still matters because companies will only use LinkedIn's services if there's an active audience. So, it's worth glancing at the membership metrics to check for growth. 

Competitor comparison
Facebook's first-quarter report last week beat analyst estimates on both revenue and EPS. The social media goliath reported revenue of $2.5 billion, up 72% year-over-year, and $0.12 EPS. Over 90% of the quarter's revenue came from advertising, which makes Facebook more reliant on one earning method than LinkedIn.

But, Facebook is finding profitable new ways to utilize the data collected from its 1.28 billion monthly active users. The company is holding its f8 developer's conference on April 30, the day prior to LinkedIn's earnings report, and is expected to, at a minimum, present a lucrative new mobile advertising platform.

Facebook's sheer number of members and associated user data puts the company far ahead of LinkedIn. But, LinkedIn is barely in the ad game, relying more on corporate clients needing services. Still, social networking services come and go, and LinkedIn could find itself on the way out if Facebook doesn't lose steam first. 

Foolish final thoughts 
LinkedIn makes it easy for investors to check in on its earning report with a glance. Look at the performances of the three key metrics and ensure those numbers have grown, and make sure that the membership metrics are also on the way up.

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Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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