Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What's happening: Shares of LinkedIn Corp. (NYSE:LNKD.DL) were down 21% as of 11:55 a.m. Friday after the business-oriented social network announced solid first-quarter results but followed with lighter-than-expected forward guidance.
Quarterly revenue climbed 35% year over year to $638 million, including 36% growth in Talent Solutions to $396 million, 38% growth in Marketing Solutions to $119 million, and a 28% jump in revenue from Premium Subscriptions to $122 million. That translated to 55% growth in adjusted net income to $73 million, and a 50% increase in net income per diluted share to $0.57.
Analysts, on average, were only expecting adjusted earnings of $0.56 per share on revenue of $636 million.
Why it's happening: LinkedIn CEO Jeff Weiner added, "Q1 was a solid quarter in which we made meaningful progress against our multi-year strategic roadmap. During the quarter, we maintained steady growth in member engagement while achieving strong financial results."
For the current quarter, however, LinkedIn expects revenue between $670 million and $675 million, and adjusted EPS of $0.28 per share. Wall Street was modeling second-quarter revenue and earnings of $717.2 million and $0.74 per share, respectively.
Similarly for the full year 2015, LinkedIn sees revenue of roughly $2.90 billion, with adjusted EPS of $1.90 per share. Analysts were anticipating 2015 earnings of $3.03 per share and revenue of $2.98 billion.
To LinkedIn's credit, management explained during the subsequent conference call that foreign currency headwinds are expected to negatively affect revenue by $50 million for the remainder of the year, including a $13 million impact in Q2.
In addition, LinkedIn is adjusting its sales forecast for core operations to the tune of $30 million to account for a combination of larger-than-expected first-quarter account transitions in Talent Solutions, which pushed out customer spending to later in the year and created a deferred impact on rateable revenue growth. More significantly, Marketing Solutions required adjustment due to the continued migration to LinkedIn's new suite of products, and secular headwinds working against traditional display ads, mostly in Europe.
Finally, the forecast also accounts for the near-term impact of its pending acquisition of skills-based video content specialist lynda.com, the near-term integration of which will negatively impact revenue and margins. Lynda.com's contribution to overall results should normalize in the back half of 2016.
All things considered, while it's hard to blame the market for taking a big step back today given the seemingly startling guidance miss, I'm content with LinkedIn's explanations for the underlying reasons. Over the long term, that's why I still think LinkedIn is a compelling opportunity for patient investors.