Does LinkedIn's (LNKD.DL) recent sell-off mean its a stock to steer clear of, or has it presented investors with a good buying opportunity?
In this installment of Tech Industry Focus, Dylan Lewis and Sean O'Reilly look at the core business and consider whether the market has overreacted to the company's lackluster 2016 guidance.
A transcript follows the video.
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This podcast was recorded on Feb. 26, 2016.
Dylan Lewis: So, yeah, EBITDA as a percentage of revenue has generally been trending up. There was a little hiccup in, I think, early 2015. I believe that was related to the Lynda acquisition. But, based on guidance, margins should continue to improve. I think they're pegging somewhere around a 100 basis point improvement in 2016, which is obviously great.
Sean O'Reilly: Do you think that ... how scalable do you think LinkedIn is compared to a Facebook (META 1.98%)? Because Facebook's just a website, and we're all addicted to it, and we stalk people on it, and then there's ads. I mean, he's talking about getting 3-4 billion humans on this by 2035 or whatever. That's scalable. (laughs)
Lewis: Yeah, it's very scalable. I don't know what the job search environment is like abroad, and that's one of the things that's tougher for me to wrap my head around with their international expansion --
O'Reilly: Right, because it's like, Americans use it a lot or whatever.
Lewis: It's very common, like, if you go out for drinks or something like that, and you have a mixed group of people, and you realize that someone that you're chatting with happens to work ... say, for example, we work in editorial, and someone else works at a distribution outlet, it'd be very common for us to reach out and say, "Hey, maybe something works out." I mean, I had a high school friend who works at one of these upstart brokerage account type places reach out and say, "Oh, I realized that you're in financial content, it would totally make sense for us to see if there are any partnerships that we can work out so you guys can be on our platform." So, it totally makes sense, and it's part of the culture here in the U.S. I would think it would have to be the same abroad.
O'Reilly: I would think, but you never know.
Lewis: Yeah, and that's bolstered by what we've seen with user growth. It hasn't really slowed down. One of the other core metrics for the business that I really like, I think, over the past four quarters, it's been consistently between 19% to 21% year over year. So, that's looked pretty good. All in all, since the post-release sell-off, the stock is up about 10%. So, it dropped around 40%, and it has recovered 10% from where it dropped. So, it is still, I think --
O'Reilly: Way off.
Lewis: It's down in like the $113 to $114 region.
O'Reilly: Well, its market cap is like, $15 billion, I think. And I see these sales numbers, and I'm like, (groans) talking about $3.5 to $3.6 billion sales next year. So, it's not profitable, although ... debate ... and it's still, I don't know, 4 times or 5 times sales. It's kind of like, eh ...
Lewis: Right. But it's at a 37% discount to where it was in early February.
O'Reilly: Yeah. If you're bullish, now's the time.
Lewis: Yes. If you're bullish, now's the time. I also think, when it happened, it felt like a market over-reaction.
O'Reilly: Right, that was brutal. It was just ...
Lewis: It was crazy.
O'Reilly: It was punishing.
Lewis: Basically, I mean, they shaved $13 billion off their market cap in --
O'Reilly: Last year, yeah.
Lewis: Yeah, in a month. So, my takeaways here are, the core businesses seem to be doing fine. Management doesn't seem to be worried about competitive threats to what they're doing. There aren't major players coming in to steal their lunch. User growth is good. EBITDA is trending where you want it to be. And there seems to be a lot of really good growth avenues available to them. So, if you like them, it seems like a great time to add to a position if you already have a position with them. They are on my watch list right now. I want to just wrap up and continue doing a little more homework. But I've had my eye on them for a little bit.