LinkedIn Connects on 4Q Results, but Still Overvalued
This wide-moat firm is prudently investing to support its moat, but we can't justify today's stock price, says Morningstar's Rick Summer.
LinkedIn (LNKD) announced results for its fourth quarter that were generally in line with our revenue, adjusted EBITDA, and operating cash flow forecast, but the company outlook for 2014 is below our current models. Presently, our fair value estimate remains the same, as the downward revision of our forecast is likely offset by cash earned throughout 2013. In our view, this wide-moat firm is prudently investing to support its moat, though we consider the shares overvalued. We would prefer a margin of safety before recommending an investment.
LinkedIn's revenue grew 47% to $447 million, paced by the Talent Solutions segment which grew 56% versus 2012 to $246 million. For our purposes, continued strength in this segment is evidence of LinkedIn's unique ownership of the professional identity, both for employers spending money searching for job candidates and for professionals who use the website and its applications. This segment continues to perform well, and the stable ARPUs, or average revenue per user for corporate customers, are encouraging, even though new customers are typically smaller and spend less money than the more established customer base. Furthermore, within Talent Solutions, approximately 50% of revenue is recurring, versus 40% a year ago. These results are promising, and they further support our current thesis and valuation.
Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.