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Is LinkedIn a good buy?

June 27, 2014 | About:
anandjha89

anandjha89

1 followers

Although many dream about getting rich by betting on tech stocks, LinkedIn Corp (LNKD) does not seem to provide this opportunity any longer. There is, however, one way of still making good money with this website: getting a job.

The Bright Side

As the dominant player in the professional networking arena-with roughly 260 million registered users, your chances of finding a job or being found for a job on LinkedIn are pretty good. The network effects generated by this large user base have and should continue to work as a strong tailwind for the company.

In addition, LinkedIn Corp (LNKD) operates on the most efficient business model in the industry: it monetizes its user base like no other –including Facebook Inc (FB). In addition to publicity, LinkedIn profits from Hiring Solutions and Premium Memberships, unlike its competitors, who depend on advertising revenue.

The company´s mobile segment is also flourishing and provides plenty of growth opportunities for the years to come. Also, the market in which it operates is quite nascent, so expansion is yet far from capped.

Finally, LinkedIn has a relatively decent financial standing: its cash and cash equivalents stand $676.6 million versus $617.1 million in the prior quarter, and its long-term debt is non-existent.

However…

Despite the aforementioned reasons to feel bullish about LinkedIn Corp (LNKD), its valuation would discourage the boldest of investors. Trading at about 770 times its trailing earnings and 102.5 times its forward EPS, the market seems to have created a little distortion. Although growth rates have been great, they have been and are expected to continue to decelerate going forward and thus, do not justify such a high valuation. Also, margins and returns are razor thin, way below industry averages. This shows that the company is not optimizing resource use or reinvesting its money in profitable ways.

Furthermore, the professional networking giant has limited presence in high-growth markets, where competitors like Viadeo have larger shares. Facebook Inc (FB) might also pose a real threat someday soon.

Finally, security issues have been raised once and again regarding LinkedIn Corp (LNKD). You might remember the case of a group of hackers who stole millions of LinkedIn user passwords.

So, although there is some upside potential on this stock, risks abound, making its sky high valuation a little bit too high.


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Comments

paulkyl
Paulkyl - 5 months ago

Good write up.

LinkedIN is a $20 Billion SPAM site.

It's time to Link Out of this annoying SPAM site.

anandjha89
Anandjha89 - 5 months ago

Thank you :)

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