Please ensure Javascript is enabled for purposes of website accessibility

Why Did LinkedIn Corp. Stock Drop 12% in January?

By Daniel B. Kline – Feb 1, 2016 at 4:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company often suffers from the category it gets included in, which is not a fair reflection of its business.

Sometimes simply not being the market leader can weigh down a stock, even though no negative news has been delivered. For LinkedIn (LNKD.DL), even though the company has a very different business model than its social media rivals Facebook (META -1.69%) and Twitter (TWTR 0.43%), simply being grouped in that club can hurt it.

What: LinkedIn stock dropped 12% in January, according to S&P Capital IQ data, and nothing specific happened to cause the fall. The company did not report, nor did it issue any major news. Instead, the social media site built around jobs and work was simply caught in a downdraft.

On one side, you had Facebook, the reigning industry titan, which issued a strong earnings report late in the month while also making changes aimed pushing back upstart rival Snapchat. Those moves may have sent a subtle reminder to LinkedIn shareholders that the company is vulnerable should its much bigger rival decide it wants in on LinkedIn's niche.

It's also possible the the ongoing uncertainty at Twitter simply reminded people that any social media plays that are not Facebook have struggled to thrive on a long-term basis.

Image source: YCharts.com.

So what: In some ways, LinkedIn is merely a victim of vague market concerns, and in many ways, that's not exactly fair. Yes, Facebook could likely do some real damage if it chose to go after the company's audience, but aside from both being labelled social media sites, the two are not really in the same business.

As my Fool colleague Andres Cardenal pointed out in his article "Will 2016 Be LinkedIn's Best Year Yet?" Facebook (and Twitter) make nearly all of their revenue from advertising, while LinkedIn only earned 18% of its Q3 revenue that way. The company also earned another 18% from premium subscriptions, but the vast majority of its revenue (64%) comes from talent solutions -- essentially helping companies fill jobs.

Basically, while LinkedIn has a lot of social media site functionality, it has more diverse revenue streams, and its fate does not necessarily track with Facebook's and Twitter's.   

Now what: LinkedIn reports Feb. 4, and if it meets expectations, its stock will recover. The company has actually become a more diverse company in recent years, including moving into online education by buying Lynda.com and continuing to pursue non-advertising growth strategies. As long as the results of those efforts continue to pay off -- as they did in Q3 -- then the periodic fears that Facebook will steamroll them because social media is somehow Highlander (there can be only one) will lessen for a while.

Daniel Kline owns shares of Facebook. He is on Facebook. Twitter, and LinkedIn, but draws the line at Snapchat. The Motley Fool owns shares of and recommends Facebook, LinkedIn, and Twitter. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$140.41 (-1.69%) $-2.41
LinkedIn Corporation Stock Quote
LinkedIn Corporation
LNKD.DL
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$41.58 (0.43%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.