LinkedIn shares dive 43%, wiping off almost $11bn

Feb 05, 2016, 5:48 PM EST
Source: Esther Vargas/flickr

LinkedIn shares fell a staggering 43%, wiping off almost $11 billion in the firm's market capitalization as investors fled.

Reuters writes:

LinkedIn Corp's (LNKD.N) shares plunged as much as 43 percent on Friday, wiping out nearly $11 billion of market value, after the social network for professionals shocked Wall Street with a revenue forecast that fell far short of expectations. The stock sank to a three-year low of $109.50, registering its sharpest decline since the company's high-profile public listing in 2011. At least seven brokerages downgraded the stock from "buy" to "hold" or their equivalents, saying the company's lofty valuation was no longer justified. "With a lower growth profile, we believe that LinkedIn should not enjoy the premium multiple it has grown accustomed to," Mizuho Securities USA Inc analysts wrote in a note. The brokerage downgraded the stock to "neutral" and slashed its target price to $150 from $258.

Raymond James, Cowen and Co, BMO Capital Markets, J.P.Morgan Securities, RBC Capital Markets and Suntrust Robinson also downgraded the stock. At least 22 brokerages cut their price targets, with RBC slashing its target by almost half to $156. LinkedIn forecast full-year revenue of $3.60-$3.65 billion, missing the average analyst estimate of $3.91 billion, according to Thomson Reuters I/B/E/S. "This would imply that LinkedIn will grow around 15 percent in 2017 and 10 percent in 2018," the Mizuho analysts said. Underscoring the slowdown in growth, LinkedIn said online ad revenue growth slowed to 20 percent in the fourth quarter from 56 percent a year earlier. Adding fuel to the selloff was the release of the U.S. monthly jobs report, which showed employment gains slowed more than expected in January.

Forbes writes:

Why did LinkedIn’s upward trajectory suddenly changed, and why was Wall Street’s reaction so negative? Here are five factors:

1.Macroeconomic weakness: On a call with analysts and investors, LinkedIn said economic slowdown in Europe, the Middle East, Asia and Africa isn’t expected to be massive, but will dampen sales. The company said this weakness could cause revenue growth in field sales (sales which are made via LinkedIn’s sales team), to fall to mid-20%. At the end of last year, field sales revenue growth was about 30%.

2. The shutdown of “Lead Accelerator”: LinkedIn is shutting down part of its business-to-business marketing service, called “Lead Accelerator,” a product that LinkedIn formed after its acquisition of business marketing firm Bizo. LinkedIn said it expects the move to reduce revenue by $50 million this year but will allow the company to direct resources to better performing products.

3. A slowdown in “online sales”: LinkedIn’s total revenue growth was 34% in the fourth quarter, down from 37% in the third quarter. LinkedIn’s CFO Steve Sordello on Thursday put the blame in part on “online sales,” or products that customers purchase on LinkedIn without any interaction with a sales representative. Those products, such as “Recruiter Lite” or “Premium Subscriptions,” weighed on LinkedIn’s 2016 guidance, Sordello said.

4. Impact from foreign currencies: LinkedIn said currency movements are expected to lower the company’s growth by 2% in 2016.

5. New products weren’t baked in: LinkedIn’s new “Recruiter” and “Referrals” enterprise products, which are rolling out this year, weren’t factored into LinkedIn’s 2016 forecast and could offer a meaningful boost to revenue.