Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

LinkedIn Corp (LNKD): Five Reasons to Sell

Page 1 of 2

LinkedIn Corp (NYSE:LNKD) has firmly established its presence as the most notable professional platform in the social media space. The company has been growing rapidly in most of the key areas. However, the company’s rich valuation and the increasingly crowded social media landscape warrant a look at some of the things that can go wrong with an investment in LinkedIn Corp (NYSE:LNKD). Here are five reasons to stay away from LinkedIn’s stock:

LinkedIn Corp (NYSE:LNKD)

1. Declining user engagement

LinkedIn has a done a great job of signing up more than 225 million registered users. According to comScore, LinkedIn and the publishing segment, Slideshare, have a combined monthly user-base of 170 million users. However, the time spent on LinkedIn is not rising dramatically. In other words, visitors to LinkedIn Corp (NYSE:LNKD) are not actively engaging and communicating with other users. Numerous members of the site are quite inactive in LinkedIn’s platform, very much in line with Google Inc (NASDAQ:GOOG)‘s social media arm, Google+.

As LinkedIn is a professional network, users don’t visit the site for months. Average page view per member now stands at 53, well below its all-time high of 70 back in Q1-2011. Social media rival Facebook Inc (NASDAQ:FB)has been rapidly converting its monthly active users to daily active users, which hit all-time highs. In Q1-2013, Facebook Inc (NASDAQ:FB) reported that 60% of its monthly active user base visits its platform every day, which translates into a daily user base of more than 665 million.

The rapidly rising number of social media alternatives for Internet users will likely impact a handful of relatively weaker platforms like LinkedIn Corp (NYSE:LNKD) and Google+. Many users are shifting towards newer ones like Tumblr, Pinterest, Instagram and Twitter. The increasing number of social platforms is also leading tosocial media fatigue.

2. High Multiples

A majority of the company’s future upside is already baked into its stock price. In the last quarter, the company’s management provided relatively weak guidance, which led to a steep decline in the share price of the company. The company is trading at very high earnings multiples under any scenario. LinkedIn’s valuation is rich as measured by its trailing twelve month P/E of 701 and a forward P/E of roughly 86.

On a comparative basis, other leading Internet names like Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) have much more reasonable valuations. Facebook is trading at an earnings multiple of roughly 528 and has a forward P/E of 32. Whereas, Google Inc (NASDAQ:GOOG) is trading at 27x current earnings and has a reasonable forward P/E of 17. LinkedIn Corp (NYSE:LNKD) is quite an expensive stock, and it is already priced for perfection.

3. Growth rates will decelerate

LinkedIn has seen explosive growth rates in almost all of its business segments.LinkedIn Corp (NYSE:LNKD)’s revenue has been growing at high double growth rates for a number of quarters, but that was largely attributable to its small size. As the company gets bigger, its growth rates will trickle down substantially.

The company makes more than 57% of its total revenues from the talent solutions business, and this market segment is not a very big one. It has already taken a lot of market share from other recruiting portals like Monster and Careerbuilder. As a result, the amount of future growth in its primary revenue segment is largely questionable.

In addition, the company’s registered user base of 225 million professional members globally is already a lot. The company has pointed to an addressable market of roughly 600 million professionals across the globe, but a large number of those users are already on board. In a nutshell, future growth in users will likely be a lot slower than the historical levels of 50-70%.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!