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Can LinkedIn Corporation's Q1 Earnings Soothe Concerns After a 40% Decline?

By Daniel Sparks - Apr 5, 2016 at 6:30PM

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Investors will soon find out whether or not management's worse-than-expected guidance was conservative or not.

LinkedIn's (LNKD.DL) worse-than-expected fourth-quarter report earlier this year absolutely rocked the stock. Shares plummeted more than 44% in a single day following the report, and are still down 40% ahead of the company's first-quarter report later this month. Can the social network for professionals help sooth investor concerns when it reports results later this month?

Here's what to expect when the company reports, as well as a look back at what caused last quarter's big sell-off.

Reliving LinkedIn's 44% decline
Feb. 5 was a painful day for LinkedIn investors. Ten billion dollars was erased from the company's market capitalization in a single trading day after the company said it expected a sharp deceleration in the company's revenue and non-GAAP EPS growth rates during 2016.

Management said it expected year-over-year revenue and non-GAAP EPS growth in the ranges of 20% to 22% and 7% to 13% in 2016, respectively. This expected growth is significantly below the company's year-over-year revenue and non-GAAP EPS growth of 35% and 41% in 2015, respectively.

Management had plenty of reasons for the worse-than-expected guidance, including economic conditions, currency headwinds, touch comparisons in its important self-serve products portion of its talent solutions segment, the removal of $50 million in potential revenue from a marketing solutions product the company decided to shut down, and more.

What investors are expecting
For Q1, investors will get to see just how conservative management's worse-than-expected guidance for the year was. If the company is able to meaningfully outperform its own guidance, investors might regain some confidence in the company's growth story. But if it underperforms, there could be more reason to view management's growth expectations with skepticism.

In the company's fourth-quarter earnings report, the company said it expected first-quarter revenue and non-GAAP EPS of $820 million and $0.55, respectively. These figures compare to $638 million and $0.57 in the year-ago quarter.

Metric

Year-ago quarter

Q1 guidance

Difference (%)

Revenue

$638

$820 million

28.5%

Non-GAAP EPS

$0.57

$0.55

(3.5%)

Table source: Author.

As is clear from the company's guidance for the quarter, improving profitability continues to be a struggle for LinkedIn. This is a result of the company's emphasis on forward-looking investments, which management hopes will payoff in the long-term.

"As we look toward 2016, our focus is on investing intelligently in our core member and customer value propositions to capture the large, addressable opportunity ahead of us," LinkedIn CFO Steve Sordello said.

On a GAAP basis, the company is still reporting losses. This is one of the reasons worse-than-expected guidance wasn't received very well with investors. Investors are hoping growth will, over time, lead to profits.

LinkedIn's fourth-quarter GAAP loss per share was $8 million. Another GAAP loss in Q1 is all but certain.

Image source: LinkedIn.

Beyond these basic financial metrics, two other areas worth taking a close look at when the company reports results are its ongoing integration of Lynda.com into LinkedIn, as well as the performance of LinkedIn's Sponsored Updates, which had a huge year in 2015 and now represent more than half of the company's marketing and solutions revenue.

LinkedIn is scheduled to report first-quarter results after market close on Thursday, April 28. Following the earnings release, management will host a conference call at 2:00 p.m. PST. Investors can find the earnings release and the conference call on the company's Investor Home portion of its website.

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