LinkedIn Corp Has an Earnings Problem!

After reporting earnings that fell short of expectations, shares of LinkedIn tanked on May 2. With shares of the company trading far off their highs, is now the best time to get in for the long-run, or is Monster Worldwide a more attractive prospect?

May 7, 2014 at 10:30AM


Source: Wikimedia Commons. 

You can't please everyone these days! Even after reporting revenue that exceeded analyst expectations for the first quarter of its 2014 fiscal year, shares of LinkedIn (NYSE:LNKD) fell 8% because of higher costs that depressed its profitability. Now, with shares in the social media behemoth trading at a 40%+ discount to its 52-week high, is the company hard to pass up? Should you look to Monster Worldwide (NYSE:MWW) for more attractive returns?

LinkedIn's revenue beat but earnings fell far short!
For the quarter, LinkedIn reported revenue of $473.2 million. In addition to being higher than the $466.6 million forecasted by analysts, the company's revenue is 46% above the $324.7 reported in the same quarter a year earlier. Although all the company's areas of operation performed well, the largest contributor to its rise in revenue was the talent solutions line, which saw its sales increase by 50% from $184.3 million to $275.9 million.


Source: Wikimedia Commons.

In terms of revenue, LinkedIn did quite well for itself, but when you look at the company's bottom line, there's a pretty good chance you'll be left scratching your head. For the quarter, the social network reported a loss per share of $0.11. On top of being far lower than the $0.20 gain the company reported last year, its net loss was way below the $0.34 Mr. Market expected to see. This disappointing figure came from a number of things, but the most notable was stock-based compensation that totaled $67.8 million.

But is Monster Worldwide any better?
Over the past four years, LinkedIn has seen tremendous growth. Between 2010 and 2013, the company's revenue grew 1,173% from $120.1 million to $1.5 billion. This top-line growth has been due, in part, to the 206% jump in registered user count from 90.4 million to 276.8 million but should also be chalked up to the company's array of products such as its talent solutions and premium subscriptions.

LNKD Revenue (Annual) Chart

Source: LinkedIn revenue data by YCharts.

This increase in sales for the business is far better than what Monster Worldwide has seen. Over the past four years, Monster Worldwide's revenue dropped 12% from $914.1 million to $807.6 million. This decrease in revenue came from declines in two of the company's three segments.

Between 2010 and 2013, its careers-international segment saw sales drop 20% from $360.8 million to $288.6 million, while the company's Internet advertising & fees segment saw revenue plummet 45% from $131.1 million to $72.7 million. The decline in sales in its careers-international segment can be chalked up to weak economic conditions in Asia and Europe, as well as foreign-currency impacts. Monster Worldwide's Internet advertising & fees segment attributed its fall to a change in business strategy in light of new regulations and lackluster margins.

From a revenue perspective, you can see LinkedIn is the more attractive prospect. This also holds true when investors look at the company's profits. Between 2010 and 2013, LinkedIn saw its net loss of $4 million turn into a gain of $26.8 million. In spite of being negatively affected by a rise in selling, general and administrative expenses, LinkedIn reported improvements in its cost of revenue, which fell from 21.6% of sales to 13.3% and its research and development, which dropped from 32.8% of sales to 25.9%.

LNKD Net Income (Annual) Chart

Source: LinkedIn net income data by YCharts.

Monster Worldwide also reported an increase in its bottom line, but its numbers don't look as reliable. Over the past four years, the company's net loss of $32.4 million narrowed to a loss of $0.5 million, but it's important to keep in mind that changes in tax benefits and liabilities as well as a loss from discontinued operations in 2012 has made the company's bottom line pretty volatile.

Foolish takeaway
Based on the data provided, it's easy to see why Mr. Market was unhappy with LinkedIn's performance. Despite reporting strong revenue, the company's bottom line was pretty disappointing. Moving forward, it will be interesting to see how the company fares, but for investors intent on a social media/employment-seeking business, LinkedIn seems to be a better prospect than Monster Worldwide.

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Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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