LinkedIn's Stock Is Underperforming: Should Investors Fret?

LinkedIn (LNKD.DL) stock hasn't performed so well recently. In fact, it's been on the decline. Consider its performance in the following time periods relative to the S&P 500.

This underwhelming performance may have some investors wondering whether this stock is worth holding onto. But a close look at the underlying business reveals reasons to be optimistic.

To capture the strength of LinkedIn's business, consider some key takeaways from the company's most recent quarterly results.

Engagement continues to rise
One of the key items LinkedIn investors should be watching is member engagement. While it's obvious that investors should hope LinkedIn's total member base continues to rise (and it is), it's just as important that these members are as engaged as ever.

A useful way to check on engagement per user is to look for member page views to increase faster than unique visiting members. If this is the case, overall engagement on LinkedIn's platform is probably in good shape.

In Q2, LinkedIn performed exceptionally when it comes to engagement. Member page views soared 40% on 15% growth in unique visiting members.

During LinkedIn's second-quarter earnings call, management emphasized more specific areas where member engagement is excellent.

In Q2, we continued to invest in improving the quality and relevance of the flagship LinkedIn experience. These investments resulted in a 60% increase in year-over-year feed engagement and search growing meaningfully faster than overall traffic.
-- LinkedIn CEO Jeff Weiner

Lynda.com is looking good
Since LinkedIn completed the acquisition of Lynda.com in May, investors have been eagerly waiting to get more insight on how the site is performing under LinkedIn's umbrella.

Image source: Lynda.com

So far, it's clear that LinkedIn management is happy with the acquisition. Consider this tidbit from the company's second-quarter call.

We have already tested early integration efforts, and the results so far have exceeded our expectations. One promotional campaign delivered to LinkedIn members outperformed our expectations by 7x in generating new subscribers, an early signal of what we can achieve when applying LinkedIn's scale, data and distribution to Lynda.com's content.
-- LinkedIn CEO Jeff Weiner

In Q2, Lynda contributed $18 million in revenue to LinkedIn's top line, or about 2.5% of the total.

China remains a catalyst
LinkedIn's member base in China has more than doubled since February last year, when the company reported it had 4 million members in the country. Management said in its second-quarter earnings call that it recently reached the 10 million member milestone in the market.

While that is only a fraction of LinkedIn's 380 million total members today, there's plenty of potential for further growth. LinkedIn CEO Jeff Weiner has said that he believes the company can eventually attract around 140 million new professionals in the country.

These are just some of the reasons why LinkedIn stock is worth holding onto. As long as the company continues to grow its business meaningfully and management remains disciplined in its efforts to build shareholder value over the long haul, there's no reason to sell this market leader -- even if the stock has floundered well below market returns recently.