Facebook Inc (FB), LinkedIn Corp (LNKD): Three Things To Watch In This Upcoming Earnings Report

Those 3 Numbers I Promised
Keeping all of the above in mind, at this point the only thing standing in LinkedIn’s way is the company itself. The first thing that investors need to watch for is a continued high level of research and development spending. In the last few quarters, the company spent around 25% or more on R&D. By comparison, Monster spent almost nothing on R&D, and Facebook Inc (NASDAQ:FB) spent 18.74% in the current quarter. In a competitive industry like professional development, LinkedIn Corp (NYSE:LNKD) can’t afford to slow down its R&D spend, or the company could be disrupted itself.

The second thing investors need to watch for is the company needs to get its sales and marketing expense under control. In the last four years, sales and marketing as a percentage of revenue has been growing sequentially. In fact, this line item has increased from 22.35% in 2009 to 33.41% in 2012. The company’s growth has been huge, but spending smarter on sales and marketing seems to be in order.

Third, investors need to watch the company’s cash flow and cash balances to determine success. Many people worry about LinkedIn Corp (NYSE:LNKD)’s use of stock options, but cash and cash flow tell a story of their own. In the last year, the company’s core operating cash flow (net income + depreciation) increased 84.43%. At the same time, the company’s net cash and investments grew by nearly 30%. As long as LinkedIn is growing these two measures at a good clip, investors have nothing to worry about.

It’s easy to worry about a stock with a current year projected P/E of 130. However, if LinkedIn can continue to grow its cash flow and cash balances like it has, analysts’ projections of over 60% EPS growth are believable. Relatively speaking neither Monster Worldwide nor Facebook Inc (NASDAQ:FB) can match this type of growth. As I said before, LinkedIn Corp (NYSE:LNKD) is the kid that knows everyone, makes friends quickly, and is really going places.

The article 3 Things To Watch In This Upcoming Earnings Report originally appeared on Fool.com and is written by Chad Henage.

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