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Commentary

Solid Quarter for Wide-Moat LinkedIn: Shares Fairly Valued

We're reaffirming the stock's moat rating but don't think the shares offer a margin of safety at this time.

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 LinkedIn (LNKD) posted strong third-quarter results, above our expectations, driven by strong performance across all three segments: talent solutions; marketing solutions, and premium subscriptions. Management also increased its full-year outlook for revenue and adjusted EBITDA slightly ahead of our forecast. We anticipate increasing our fair value estimate slightly after revising our model, and reaffirm the company's wide moat rating. Although we expect the stock to be fairly valued, we don't believe the share price provides a 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 for the second quarter, growing top line by an impressive 37% to $780 million. Talent solutions, the core driver of the company's value proposition and largest contributor of revenue, grew 46% (34% organically) as the company's registered members reached nearly 400 million members. Eighty percent of the net adds were outside the U.S. as international consumers respond to the company's platform localization efforts, especially Chitu, the networking app designed for the Chinese market. Management announced a similar plan to build a specialized platform for the Indian market, now LinkedIn's second-largest market base. We were encouraged to see sponsored updates representing more than 50% of the marketing solutions segment, as the company moves away from generic display ads to business-focused ad units which command premium pricing while also supporting continued engagement by the user base.

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