- It lost $3.4M in the quarter. About what it guided last quarter.
- While it beat its own revenue guidance by $20M, it provided no benefit to its income.
- Page views and visitors dropped despite a 17M increase in members
- Its slideshare subsidiary had an even sharper drop in visitors and page views..
- It is guiding only 40% increase in revenue over last year for the last quarter.
- The lowered guidance from Q2 for Q4 is restated.
- It expects a drop in page views and visitors again.
- It expects another loss in Q4
- Full year earnings per share will be lower than last year, despite a >50% full year revenue increase.
- It will have increased total diluted shares to over 120M, from 112M last year (~8%)
- Many of its new members may be ghosts.
- Lawsuit this quarter alleges what is already widely known: Linkedin hacks into your contacts and spams (sends) invitations on your behalf to everyone there.
- The spam can trick children into signing up with some difficult red tape to removing the account.
- It has lowered its member standards to target 14 year olds so that they may link with colleges.
- Even with its poor reputation for email ethics and privacy and systems safety, it has launched a mobile email service that grants linkedin full access to all of its users incoming and outgoing email
- That it beats its own guidance for EBITDA but never for income effectively proves that it is either padding its revenue, or just pays its employees larger stock bonuses as a function of that increased revenue.
Revenue per user dropped to $1.52 from the previous quarter. That further supports the premise that they are running out of marketable new users, and perhaps just padding their user numbers with shady practices.
EBITDA and NON-GAAP earnings is not a useful metric
Financial analysts that place any weight on non-GAAP earnings or Earnings Before Income Tax and Depreciation for linkedin make a grave error.
Unlike capital intensive companies such as airlines, mineral extraction, or car plants, which generally pay a large amount to start a project whose costs get depreciated slightly each year, Linkedin's depreciation expenses is for ongoing computer upgrades and expansion, and these costs are generally depreciated very quickly, and in some jurisdictions are allowed to be expensed. Unless we expect it to stop renewing its computer infrastructure, their depreciation costs should be a core part of their operations and earnings.
Linkedin also adjusts EBITDA to exclude the significant stock based compensation it awards itself. Almost $200M this year, leaving profit for the year of a little over $20M. The dilution this stock compensation creates directly harms any shareholder who is not receiving compensation from LNKD. Because of the dual share structure that keeps solid control of the company with insiders, there is no possible pressure that would change its compensation policies.
Other anaylyses on LNKD
Commenting after LNKD issued over 5M shares in a secondary offering this quarter, was this detailed long term projection for the company and a resulting company value of $12B and $106/share.
Most of the numbers are quite fair and optimistic at the same time. The one major error in the analysis is assuming only 112M shares outstanding over the next 20 years. LNKD is already up to 120M shares, and an optimistically low number of new shares would be 1M per quarter, and that results in 200M shares outstanding in 20 years. So a $12B eventual company value is only worth $60/share.
The other major issue with the $12B valuation is relying on operating income that excludes depreciation and stock compensation, and so for the next 5 years overestimates earnings by 7x. So the $12B valuation relies on income that is likely to never be available to shareholders.
The major issue with social media valuations
Assumptions of $10B-$30B valuations on social media companies like LNKD or Twitter assume a world where users are monetized aggressively, and the users don't mind being monetized. There also tends to be an assumption of a world where advertisers want to pay very high prices, and sell themselves on spending their money, and the social media company just has to staff enough people to answer phones and return email in order to collect all of that money. Analyst valuations should be more considerate of the uncertainty of these assumptions.
A followup with Facebook (FB) confirming the above point
FB reported earnings a day after LNKD. Impressive sales growth of over 60%, based on the strength of growth in its mobile advertising. Much better than LNKD, However, they warned that there is not much more advertising that they can show users, and so their future growth is limited.