LinkedIn letdown: Numbers for 1st-quarter shine, but stock plummets on disappointing forecast

SAN FRANCISCO – LinkedIn’s rapidly rising stock got demoted late Thursday after the online professional networking service released a forecast calling for its earnings growth to slow later this year as the company hires more workers, invests in data centres and tweaks the way that it shows online ads.

The predicted deceleration overshadowed another stellar performance during the first three months of the year. As has been the case in every reporting period since LinkedIn Corp. went public two years ago, both the company’s first-quarter earnings and revenue topped the analyst estimates that steer Wall Street expectations.

But management’s projections for both the current quarter ending in June and the full year came in below analyst projections, rattling investors who have become accustomed to LinkedIn delivering nothing but pleasant surprises.

The letdown dampened the feverish interest in LinkedIn’s stock, which surpassed $200 for the first time Thursday. After closing at $201.67, LinkedIn’s shares tumbled $20.45, or more than 10 per cent, to $181.22 in extended trading.

Even if the sell-off carries through into Friday’s regular trading session, LinkedIn’s stock still will have more than quadrupled from its initial public offering price of $45. As of Thursday’s close, the shares had surged by 76 per cent so far this year compared to a 12 per cent gain for the Standard & Poor’s 500 index.

LinkedIn has thrived by establishing itself as the go-to place for employers to find talented workers and for people to get job tips and other advice to manage their careers. It doesn’t cost anything for people to set up a professional profile on the site. The Mountain View, Calif., company makes most of its money by charging employers and headhunters for analytical tools and additional access to LinkedIn profiles and the site, such as the ability to send messages to users.

The service now has 225 million members, up from 202 million members at the end of last year.

LinkedIn is now adding more content, giving its audience more reasons to return to its website more frequently and to stay for longer periods. The company hopes that will lead to more advertising to supplement its revenue. As part of that process, LinkedIn plans to place more ads within the stream of the personal updates appearing in the middle of its members’ individual pages rather displaying them on the sides.

The switch is a strategy already used by social networking leader Facebook Inc. and online messaging service Twitter to make it easier to show ads on mobile devices. LinkedIn plans to make the transition gradually to minimize the chances of irritating its members, CEO Jeff Weiner told analysts during a Thursday conference call.

LinkedIn’s profits also will be lowered by the expenses for expanding the company’s payroll and building data centres to run its online services.

“There are some incremental investments coming into play,” Steve Sordello, LinkedIn’s chief financial officer, told analysts during the conference call.

LinkedIn earned $22.6 million, or 20 cents per share, in the first quarter. That’s up from $5 million, or 4 cents per share, in the same period a year earlier. Adjusted earnings were 45 cents per share in the latest quarter, well above analysts’ expectations of 30 cents, based on a poll by FactSet.

Revenue grew 72 per cent from last year to nearly $325 million — about $7 million above analyst projections.

Analysts, though, are likely to revise their estimates for the rest of the year.

LinkedIn expects second-quarter revenue between $342 million and $347 million for the April-June period. Analysts had forecast $360 million.

For the full year, LinkedIn believes its revenue will range from $1.43 billion to $1.46 billion. That’s $20 million more than the company had predicted a few months ago, but analysts have been counting on full-year revenue of $1.5 billion.

Another figure that troubled investors is LinkedIn’s forecast for its earnings before interest, taxes, depreciation and amortization, or EBITDA. This measure provides an inkling of how much money the company is likely to make. LinkedIn expects full-year EBITDA of $330 million to $345 million for the full year, below analysts’ expectations of $363 million.


AP Technology Writer Barbara Ortutay in New York contributed to this story.