LinkedIn's status as one of the Internet's rising stars on Wall Street will be riding on its third-quarter earnings.
WHAT TO WATCH FOR: The results, due out Thursday after the stock market closes, will probably need to top analysts' estimates to propel LinkedIn's high-flying stock to even greater heights. A disappointing performance could drag down a stock that has more than doubled since LinkedIn went public at $45 in May 2011.
Investors' warm embrace of LinkedIn Corp., the largest online professional networking service, contrasts with the cold shoulder given to other prominent Internet companies that went public in the past 18 months, such as social networking leader Facebook Inc., Web game maker Zynga Inc., online coupon distributor Groupon Inc. and Internet radio station Pandora Media Inc. All trade well below their initial public stock offering prices.
LinkedIn is faring better than its Internet peers because its growth has been steadily accelerating as more people around the world share their professional backgrounds and aspirations on its networking service. That, in turn, has prompted more headhunters and companies looking to recruit employees to pay the fees that LinkedIn charges to gain better access and more insights into the information posted on the website.
Things have been going so well for LinkedIn, which is based in Mountain View, Calif., that analysts are starting to raise the financial bar that they expect the company to clear. In the second quarter, analysts' average revenue estimate was only $1 million, or less than 1 percent, higher than the top end of management's projections. This time around, analysts' average revenue forecast is $5 million, or about 2 percent, above the company's prediction. Although that may not sound like much, it makes it more difficult for LinkedIn to exceed Wall Street's expectations.
Besides LinkedIn's revenue and earnings, member growth will be another key to the third quarter. Since its IPO, LinkedIn has been adding an average of about 14 million members every three months. The company will likely need to add at least that many this time around to avoid raising concerns that its service is losing momentum. J.P. Morgan analyst Doug Anmuth thinks LinkedIn ended the third quarter with nearly 188 million members, which would be about 14 million more than it had at the end of the second quarter.
LinkedIn recently has been adding more features and redesigning its website in an effort to give people a reason to visit more frequently and stick around longer. The company also has been rolling out more applications for smartphones and tablet computers to make it easier for members to connect when they are away from the home or office. Those efforts could help LinkedIn sell more online advertising. The company currently gets about two-thirds of revenues from the various fees it charges to mine the profiles and other data on its website.
WHY IT MATTERS: LinkedIn is playing an increasingly important role in the employment market as it changes the way that people find jobs and the way that employers fill them.
WHAT'S EXPECTED: Analysts are forecasting earnings of 11 cents per share on revenue of $244.6 million, according to a poll by FactSet. The earnings projection doesn't include the company's expenses for employee stock compensation.
LAST YEAR'S QUARTER: The company lost $1.6 million, or 2 cents per share, on revenue of $139 million. Profit would have been 6 cents per share if not for the costs of employee stock compensation and charges unrelated to its ongoing business.