Bloomberg News

LinkedIn Drops as Analysts Cut Ratings on Valuation Concerns

August 05, 2011

(Updates with closing share price in fifth paragraph.)

Aug. 5 (Bloomberg) -- LinkedIn Corp. declined 4.4 percent in New York trading after analysts at Evercore Partners Inc. and Morgan Stanley lowered their ratings on the stock, citing concern the professional-networking company is overvalued.

Evercore and Morgan Stanley said the stock is expensive even after the company reported an unexpected second-quarter profit and said revenue soared as business customers spent more on hiring services. The stock has more than doubled since the company’s initial public offering in May.

“Results were strong but not strong enough to justify maintaining our ‘equal-weight’ rating,” Ken Sena, an analyst at Evercore in New York, said in a research note. He dropped the stock to “underweight” and maintained a $70 price target. “LinkedIn is the most expensive name in our coverage universe.”

Morgan Stanley analyst Scott Devitt reduced his rating to “equal-weight” from “overweight,” becoming the second analyst from a LinkedIn underwriter to lower ratings on the company. Analysts at JPMorgan Chase & Co., which also helped manage the IPO, cut their rating to “neutral” from “overweight” in July.

LinkedIn fell $4.16 to $91.36 at 4 p.m. in New York Stock Exchange composite trading.

LinkedIn said profit before certain costs was $10.8 million, or 10 cents a share. That compared with an average analyst estimate for a loss of 1 cent, according to data compiled by Bloomberg. LinkedIn’s third-quarter sales forecast also exceeded projections.

Soaring Revenue

LinkedIn, which in May became the first U.S. social network to hold an IPO, has hired sales staff and added features to attract recruiters and professionals. The Mountain View, California-based company, which has 115.8 million members, gets revenue from advertising, subscriptions for premium services and by offering recruiting tools to corporations.

Second-quarter revenue soared to $121 million, LinkedIn said. Sales from hiring services almost tripled to $58.6 million. Advertising revenue more than doubled to $38.6 million, and sales from premium subscriptions increased 60 percent to $23.9 million.

In last year’s second quarter, the company had profit before some costs of $6.44 million, or 7 cents a share. Net income in the recent period was $4.51 million, or 4 cents, LinkedIn said.

Third-quarter revenue will be $121 million to $125 million, the company said. Analysts had projected $113.9 million, according to Bloomberg data.

Looking for Work

Stocks have fallen this week amid concerns about a slowing economy. LinkedIn Chief Financial Officer Steven Sordello said a slump could hurt LinkedIn’s growth, though people looking to their connections to find work would continue to be drawn to the site.

“When there’s a lot of dislocation in the marketplace, people turn to solutions like LinkedIn where they leverage their networks to get the help they need,” he said on a conference call with analysts yesterday.

Brian Pitz, an analyst at UBS in New York, said signs of a weakening economy may make investors reluctant to hold shares of LinkedIn.

“Guys are afraid in this environment to have anything that has a high multiple on it,” said Pitz, who has a $115 price target and recommends investors buy LinkedIn shares. “People are taking risk off the table.”

LinkedIn plans to increase spending on marketing and product development in the second half, Sordello said.

“2011 remains an investment year,” he said. “We plan to take a long-term perspective and invest aggressively in product engineering and infrastructure.”

IPO Boost

Bolstered by publicity from its IPO, LinkedIn passed MySpace in June to become the second-largest social network in the U.S., with 33.9 million visitors, up 63 percent from a year earlier, according to Reston, Virginia-based ComScore Inc. LinkedIn members can post their profiles on the site for free and use it to find jobs, while companies pay to give their recruiters more information about potential hires.

LinkedIn got 68 percent of its second-quarter revenue from business services and premium subscriptions, and 32 percent came from advertising and marketing on its site.

LinkedIn’s IPO helped usher in a wave of technology offerings, the most since the dot-com bubble burst in 2000, according to Bloomberg data. LinkedIn raised $352.8 million in its IPO, selling 7.84 million shares at $45 apiece.

--With assistance from Victoria Taylor in New York. Editors: Jillian Ward, Nick Turner

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.


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