Thursday, October 30, 2014

Linkedin Q3 2014 results

Continuation of my chronicaling the eventual collapse of LNKD's stock value.  Previous entry

Linkedin results seem poor and on its continued path to collapse.

  • 3rd straight quarterly loss
  • lowest ever revenue, member, mobile MAU, corporate solution customers, US, Europe, and APAC growth.  45% revenue growth.
  • While there was small growth in engagement (a sharp contrast to no growth in last 2 quarters), its total quarter over quarter revenue growth was under 6%.  Other social media stocks reported jumps in revenues per user/views.  Marketing solutions was under 3% growth over last quarter.  If LNKD executed as well on pricing as its social media competitors, these numbers should have been better.  Sponsored updates is a hyped product, and these results suggest it may be overhyped.
  • Operating expenses in the quarter grew faster than Revenue over last quarter.  Sales and Marketing having the highest growth, eating $15M of the $34M revenue growth.  Though all expense categories increased more than the 6% sales growth.
  • Continued shift towards more field sales (expensive) than online sales.  Staying at record high levels.
  • They claim 50% growth in Chinese users, but page views appear to be in the 10% growth range

  • They are forecasting a $10M loss next quarter.
  • They expect a record low 35% quarterly and 42.5% yearly revenue growth.
  • Depreciation and stock compensation estimates are even higher than they were forecast to be last quarter at $71M and $96M respectively.
  • Have increased the number of expected shares outstanding by 1M to 127M total.
  • Guidance includes more projects for costly field sales team.

An issue I added to the last quarter's report in early September is the heavy insider selling of shares particularly by the founder and CEO.  The founder is on track to sell all shares within 9 years.

2015 Guidance
Low to mid 30% growth for 2015 should be the expected announcement from Linkedin and path. Beyond 2015, $1B in annual sales growth is optimistic.

Company value
An optimistic forecast for the company is that 10 years from now it may reach  $10B in sales or $1B in profits, and stable at that level.  Such optimism would justify a $10B market capitalization.  At 127M shares outstanding, this view justifies a maximum value of $78 per share.

The company faces many risks though.  It is already close to saturating its easy markets.  If it stops its product development then it may grow stale and decline, and if it doesn't stop product development it can never have any profitability.  Linked in has never been able to show any sales growth without expense growth, and it is always possible to increase sales by $1T if you spend $1T.

The biggest reason to avoid owning Linkedin is that it has a dual class share structure.  Even if it one day has cash, it will never pay shareholders a dividend or consider reasonable takeover proposals (which would be around the $78 mark)

comparison to facebook
linkedin has 1/5th facebook's revenue.  Its sales and marketing budget is over half of facebooks, and its general admin expenses almost 40%.  It simply pays its insiders too much.  The nature of its business is not suited to ever growing to be as big and engaging as facebook is (what makes the $10B sales target optimistic), and it also cannot become as profitable.

The social media space in general has had unsustainably great ad price growth the last 2 quarters.

comparison to twitter

Twitter spends almost $1.50 for every $1 of revenue.  Linkedin isn't quite as bad, but they do spend $1 for every $1 of revenue.  While they set revenue and ebitda (fake profit) guidance 4 or 5% below what they typically achieve, their results (over guidance) are consistently accompanied by offsetting expense increases that keep the $1 cost for every $1 in revenue.

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