By Adam Fraser.
LinkedIn, like its distant cousin Twitter, is learning about the harsh realities of life as a listed company.
On the face of it, it’s Q4 results were very strong – with growth in revenue, profit and users. Yet Wall Street didn’t like the guidance it heard for FY2016 growth and smashed the stock down by 44%. Yep – almost half the value of the company lost in a single day. Listed company life may look glamorous but it’s a wild ride. And as Twitter is finding, negative sentiment around a stock price over a long enough period of time can seep into sentiment around the platform as a whole.
- Members grew to 414m, from 396m in the prior quarter (4.5% growth) and 347m a year earlier (19.3% growth).
- Unique visiting members (ie active members) were 100m, flat on prior quarter of 100m and 7.5% higher than the 93m active users a year ago. Interesting to see that less than 25% of total members are actually active on the platform. I am surprised we don’t hear more from management about strategies to drive dormant members to active, as this would appear to be the lowest hanging fruit to true user growth.
- 57% of monthly users are accessing LinkedIn via a mobile, up from 49% a year earlier but still well below the 90+% of Facebook’s users who access via mobile . The recent release of its new app is assisting here.
- Despite its noble attempts to diversify its income streams away from pure recruitment related activity, Talent Solutions remains the dominant division, driving 63% of LinkedIn’s revenue in FY2015, which is actually an increase on the FY2014 total of 60%. Marketing solutions (driven by sponsored updates) and subscriptions (driven by sales navigator) continue to contribute around 20% each.
- Financials for the fourth quarter were strong, with revenue of $862m (34% increase on prior year) and EBITDA of $249m (39% increase on the prior year). Full year results showed revenue just under $3bn and EBITDA of $780m. Significant numbers, but the guidance for next year was the key focus of the market.
- LinkedIn provided guidance for FY16 revenue of approx $3.6bn which was well below market expectations of around $3.9bn. EPS guidance was $3.05-$3.20 per share versus an expectation of $3.67. The management commentary around the reasons for the slowing growth were largely ambiguous. Credibility wasn’t helped by a $50m write down related to a previous acquisition. Result – a spooked market which smashed the stock.
- A key engagement metric moved lower in the quarter with member page views dropping to 37bn from 38bn in the previous quarter. Whilst still a healthy increase on a year ago (30 bn) any hint of a decline in engagement is a key concern. Something to watch closely next quarter.
- LinkedIn remains a reasonably US centric platform, with the USA contributing 60% of total group revenue
- LinkedIn continues to focus on (and invest in) its big data and predictive analytics capability; it announced it had acquired a tech start up Connectifier further boosting its ability to identify and match job searchers and seekers
- Management observed weakness across a few areas heading into 2016 – including, importantly, field sales growth in its Talent Solutions business as well as some global economic related headwinds.
It is important to distinguish between weakness in true operating activity versus delivering a lower outcome than the stock market had forecasted. A 44% stock price correction in one day seems perhaps overdone, but there were enough worrying items in a mixed bag of results to justify a sell decision if that’s what you wanted to see. The market in its current mood is selling first and asking questions later.