LinkedIn Stock Crash on Slowing Business

LinkedIn Corp (NYSE:LNKD) shed almost a third of its market value as the Street reacted angrily to slow growth concerns. A forecast of slower revenue growth is the last thing investors expected as it is indicative of some form of weakness in the firm’s core business.


2016 outlook

LinkedIn stock is down 15% for the year having shed 2% in 2015. A further slump to post earnings low is the last thing co-founder Reid Hoffman will want to experience. Such a decline could dilute his stakes in the company by more than $750 million.

The professional networking firm expects first-quarter revenue of about $820 million. That is way off the mark as consensus estimates currently stand at $867.1 million. For the full year, LinkedIn expects revenues of between $3.6 and $3.65 billion against an average estimate of $3.9 billion. LinkedIn posted a net loss of $8.43 million revenue even though revenue was up by 34% to highs of $862 million.

A slowdown of LinkedIn marketing services business is a point of concern for the Street. That is in part because the business is one of the key drivers of earnings. LinkedIn relies on the business to attract new clients as well as show them ads and other relevant information. As it stands, a slowdown on this front could deal earnings a big blow in the long run.

Slow economic growth in Asia and Europe is also a point of concern. Even with a slowdown in Asia, China remains LinkedIn fastest growing market for new members. It is currently targeting the marketplace viciously having unveiled a standalone app specifically dedicated to Chinese users.

CEO Long Term Play

Chief executive officer, Jeff Weiner is looking to offset weakness in the core business by shifting focus to new acquisitions. The $1.5 billion acquisition of education website is one of the exciting ventures, expected to trigger growth going forward. However, it could take some time before LinkedIn can be able to generate some value from it on the revenue front.

LinkedIn has resorted to reducing its exposure to areas that continue to hurt sales as it looks to shore up earnings. It is currently in the process of discontinuing a tool that helps marketers find leads as it has been found to contribute to a slowdown of the marketing solutions business.

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