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Stock Strategist

Rare LinkedIn Miss No Cause for Panic

We've lowered our 2015 forecast, but believe long-term growth and profit potential remains.


We have decreased our fair value estimate for  LinkedIn (LNKD) to $225 per share from $240 after the company announced first-quarter results and 2015 guidance below consensus and our projections. Valuing the company during this period of heavy investment, evolving strategy, and integration of acquisitions is a challenge, so we continue to recommend a wide margin of safety to our fair value estimate before investing in this wide-moat firm.

Total revenue grew 35% to $638 million in the first quarter, paced by talent solutions, which reached 62% of revenue at $396 million, the highest percentage of revenue in LinkedIn's history as a public company. Marketing solutions grew 38% to $119 million, although management called out weakness in its display advertising business (particularly in Europe); content marketing efforts mostly compensated for this weakness. More notable was an increase in enterprise churn, as several large customers, particularly in the oil and gas vertical, decreased their quarterly spending with LinkedIn, according to the company. Furthermore, the company has realigned its sales organization to focus more on cultivating existing customers, which has led to a change in the personnel managing specific enterprise relationships. We expect churn rates (which aren't specifically reported) to decrease over time, which should help improve revenue growth and operating leverage.

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