What's happening: Shares of professional social networking company LinkedIn (NYSE:LNKD.DL) slumped on Friday after the company reported its second-quarter results. This move downward occurred despite LinkedIn both beating analyst estimates for earnings and revenue, and providing guidance for the third quarter and the full year that was largely above analyst expectations. At 1 p.m. Friday morning, the stock was down about 9%, after having been down more than 11% earlier in the day.

Why it's happening: LinkedIn on Thursday reported quarterly revenue of $712 million, up 33% year-over-year, and up 38% on a constant-currency basis. This was about $32 million higher than analysts were expecting. Revenue growth was driven by a 38% increase in Talent Solutions revenue, a 32% increase in Marketing Solutions revenue, and a 22% increase in Premium Subscriptions revenue.

The company reported non-GAAP EPS of $0.55, far higher than the $0.30 analysts were expecting. For the third quarter, LinkedIn expects revenue between $745 million and $750 million, higher than a consensus estimate of $743.7 million. For the full year, the company expects revenue of $2.94 billion and non-GAAP EPS of $2.19, above the consensus estimates of $2.91 billion and $1.93.

Despite these positive numbers, there was some bad news as well, and that's what investors seem to be focusing on. LinkedIn's GAAP earnings declined precipitously during the quarter, even as the company beat estimates for non-GAAP earnings. The company posted an operating loss of $81 million, compared to an operating gain of $14 million during the same period last year, with total costs rising by 52.5% year over year, far faster than revenue growth.

LinkedIn had a solid quarter relative to what analysts were expecting, but a big decline in GAAP profitability driven by rapidly rising costs presents a conflicting view of LinkedIn's performance. Whether these rising costs are a warning sign, or simply investments in long-term growth that will eventually pay off, remains to be seen.

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