Earnings Review: Can Linkedin Corporation (LNKD) Grow Margins?

In addition, to competing for recruitment dollars and online advertising dollars, LinkedIn competes with many other social networks in existence for user eyeballs and engagement. Google Inc (NASDAQ:GOOG)‘s social media arm, Google+ is likely getting more traction due to a deep integration with Google Search and YouTube. However, LinkedIn has taken steps to harness user engagement by rolling out new products like Endorsements and Thought Leaders etc.

Also, majority of LinkedIn’s traffic comes in from Google’s search function, which can be an added headache. Other social media firms, like Twitter and Facebook’s very own, Instagram are also vying constantly for users and user engagement as well.

Q4 Guidance and Consensus

LinkedIn’s balance sheet is pretty strong with no long-term debt and a cash position of $677 million. The company’s management expects to bring in revenues in the range of $270 million – $275million for Q4, 2012, which represents a growth rate of 61%-64% from a year ago. As a result, total revenues for the full year should be in the range of $939 million- $944 million.

The sell-side analysts are modeling an EPS consensus of $0.19 on revenues of $ 279.5 million. The sell-side is expecting LinkedIn’s revenues numbers to be ahead of the guidance range. Given the sky high earnings multiple of more than 800 for LinkedIn, a slight miss can be a big negative for the stock price.

The Bottom Line

LinkedIn is a growing social networking platform, and has been posting solid numbers across the board. However, its competitive advantage is not durable in the long-run. Competition in the space will almost certainly increase down the road. The company’s revenues are growing at a rapid rate, but the bottom line has been in the low single digits for each of the last 15 quarters, and needs to grow its profit margins in 2013. Given the very high P/E multiple, the company might not be able to sustain the current valuation premium in the long-run.

The article Earnings Review: Can LinkedIn Grow Margins? originally appeared on Fool.com and is written by Ishfaque Faruk.

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