LinkedIn's high-flying stock riding on 1Q results

Last Updated: Tue, May 01, 2012 11:32 hrs

LinkedIn Corp.'s first-quarter earnings report will show whether the online professional networking service has been able to sustain the rapid growth that has wooed investors since the company's stock market debut nearly a year ago.

WHAT TO WATCH FOR: The results, due out after the stock market closes Thursday, will be the latest litmus test for LinkedIn's shares, which closed Monday at $108.45 — about 172 times its projected earnings and 13 times its projected revenue this year. That's a much higher multiple than well-established technology companies that are far more profitable. For instance, the stock of Internet search leader Google Inc. recently has been trading at about 14 times this year's projected earnings and six times projected revenues this year. The shares of iPhone maker Apple Inc., the world's most valuable company, have been going for 13 times projected earnings and about 3.5 times its projected revenue this year.

LinkedIn's lofty valuation means the company can't afford to stumble. Investors at the very least will probably want to see that LinkedIn is still adding about 5 million members per month — the service's growth pace since the company made headlines with a highly anticipated initial public offering of stock last May.

The company, which is based in Mountain View, Calif., ended last year with 145 million members who had posted their resumes on LinkedIn's website, up from 90 million members at the end of 2010.

LinkedIn's success has kept its IPO price well above its IPO price of $45, an accomplishment that has eluded other highly touted Internet companies such as Web game maker Zynga Inc., online coupon distributor Groupon Inc. and Internet music service Pandora Media Inc.

Recent data indicate LinkedIn is becoming more deeply ingrained in people's lives. In January, LinkedIn's website attracted more than 100 million monthly visitors for the first time and those coming by were dwelling for slightly longer periods than in the past, according to the research firm comScore Inc.

As more people set up their professional profiles on LinkedIn, employers and job seekers alike are using the website as a digital rolodex. That creates more moneymaking opportunities for LinkedIn because the company brings in most of its revenue from the fees that it charges companies, recruiting services and other people to gain additional access to the website's members.

WHY IT MATTERS: Depending on how the company fared, LinkedIn's first-quarter performance also could escalate or diminish the excitement surrounding the upcoming IPO of Facebook Inc., the Internet's largest network for socializing with more than 900 million users.

A strong showing that propels LinkedIn's stock even higher might make more people eager to invest in Facebook, which is already making more money than its peer in professional networking. If LinkedIn's results disappoint and the company's shares plunge, investors may become more reluctant to gamble on Facebook's IPO, which is expected to be priced later this month or next month.

WHAT'S EXPECTED: Analysts polled by FactSet expect LinkedIn to earn 9 cents per share, excluding certain items unrelated to the company's ongoing operations. Revenue is projected to be $179 million.

LAST YEAR'S QUARTER: LinkedIn broke even on revenue of $94 million at the same time last year.

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