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Still No Margin of Safety in LinkedIn Shares

The professional networking site’s shares tumbled on poor 2016 guidance, but that doesn’t mean they are a good value today, writes Morningstar’s Neil Macker.


 LinkedIn (LNKD) reported a strong end to 2015 driven by strong performance across all three segments. Despite beating four-quarter consensus projections, management provided weaker-than-expected 2016 guidance on both the top and bottom lines. While management has been conservative with full-year guidance in the past, the 2016 guidance came in lower than our previous projections and well below consensus estimates. We reaffirm the company's wide moat rating but are lowering our fair value estimate to $155 due to lower revenue growth expectations in 2016 and beyond as well as slower margin expansion than previously modeled. Given our lower fair value estimate, we don't believe the share price provides a large enough margin of safety at this time and we would encourage investors to wait before allocating new money to the name.

LinkedIn posted strong double-digit growth in all three segments (talent solutions, marketing solutions, and premium subscriptions) for the fourth quarter, growing total revenue by 34% (37% excluding currency effects) to $862 million. Talent solutions, the largest segment, grew 45% as the company's registered members exceeded 400 million for the first time. Along with the 19% growth in members, the firm also posted 40% annual growth in members sharing content and doubling of open job listings. The large growth in usage by both members and corporations highlights the company’s unique position at the top of the professional social networking market as well as the sticky nature of its platform.

Management continued to focus on growth and engagement this quarter, strengthening our belief that LinkedIn remains focused on user experience over near-term revenue contribution. The firm launched its new flagship mobile app last quarter which allows R&D to quickly test out new features. LinkedIn will also launch new products in 2016 for recruiters including an easy-to-use suite of all hiring tools and launching tools to help with long-tail hiring.

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Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.