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Why LinkedIn's Higher Profits and Raised Guidance Failed to Sway the Market

By Motley Fool Staff - May 6, 2016 at 10:11AM

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Market Foolery tries to explain why LinkedIn’s impressive first-quarter earnings report has been met with neither fanfare nor a stock-price bump.

LinkedIn (LNKD.DL) had an impressive quarter, but investors don't seem to care.

Generally, when a company reports higher-than-expected profits and raises its guidance for the rest of the year, the markets react by pushing its share price higher. That has not happened in this case; the seemingly good news has been met with little reaction. Is it a case of investors and analysts wanting even more than the company has delivered? Are the predictions for LinkedIn's future not rosy enough?

In this clip from the Motley Fool Money radio show, Chris Hill and Ron Gross explain why LinkedIn's higher-than-expected profits and a raised guidance simply weren't enough to impress the market, and why the company looks a bit less than appealing from a valuation standpoint.

A transcript follows the video.

This podcast was recorded on April 29, 2016. 

Chris Hill: LinkedIn's first-quarter profits came in higher than expected. The company also raised guidance for the full fiscal year. Normally, that's what we like to see, Ron. There really wasn't a big reaction with the stock, though.

Ron Gross: They revised the guidance upwards less than people thought they would, based on the strength of this quarter, which indicates, perhaps, some slowing growth later on in the year. But they did put up a good quarter, so you have to give it to them. 35% sales growth, and a 39% growth in EBITDA.

Now, the stock has been decimated. It's down 50% over the last year. So they needed to put up some exciting numbers. They stand at 433 million members at last count. That's good. Their biggest business unit, the talent solutions division, was up 41%. They did put up a nice quarter, and they should be applauded for it. 

When you look at the stock, we're around 40 times 2016 guidance, and that's if you don't count stock compensation expense as an expense, which I think you should. Once you factor that in, the valuation really goes out the door, and there's really no way to even think about it, unless you really believe in the future and believe they'll continue to put up strong growth.

Hill: So this was a quarterly report that they need to repeat in three months, and then three months after that.

Gross: Yes. But, based on that guidance going forward, I think they signaled to the market that it's not going to be as strong as this quarter.

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