The Strategist

LinkedIn fails to connect with investors despite windfall revenues

07/31/2015 - 11:10

In spite of reaping bumper revenues, shareholders are unmoved by LinkedIn’s growth.

LinkedIn Corp is the biggest social networking site for professionals. Driven by a strong growth in its business which serves recruiters, it has reported a much better-than-expected rise in its quarterly profits, which is as much as 33%.
However, its shares were down by 3.9%, during after-hour trading, as investors focused on its widening losses in its full-year revenue forecast. Of late, LinkedIn has been heavily investing in order to acquire more businesses and ramp it sales and development teams in order to leverage off its 380 million members.
As an example of one of its acquisitions, in what could be termed as one of the biggest deals in May this year, LinkedIn acquired, which is a leading company in the video training market. Thanks to its acquisitions, its total costs have jumped by a whopping 53% to $792 million.
This deal is expected to contribute around $90 million to its coffers this year, which is more than double of its original forecast. Earlier the company had moderately forecasts its overall revenue by about $40 million. The extra $50 million was a pleasant surprise.
"There are some near-term challenges that they need to overcome, which is the weakness in display advertising," said James Cakmark an analyst working at Monness, Crespi, Hardt & Co.
Given the market size, most U.S based companies have been eyeballing China and have been trying to establish roots therein. LinkedIn too has been trying to improve its mobile presence in the Chinese market, where it is developing new products specifically tailored to China. Last February its subscriber base was 4 million. It currently has 10 million members.
"If any U.S.-based Internet company has a chance to succeed in China in the near term I think it's LinkedIn," said Victor Anthony from Axiom Capital analyst. Its overall membership at the end of the second quarter jumped by 21% when compared to last year.
Revenues from its Talents Solutions, a service that it sells to recruiters, rose by a cool 38% to $443 million. This business accounts for nearly 62% of its total revenue. LinkedIn also generates revenues from premium subscriptions and advertising.
LinkedIn generates nearly 38% of the revenues from outside the U.S and had the dollar not been such a strong currency, its revenues would have risen more than 38% in this period.
LinkedIn’s revenues rose by 33.3% to 711.7 million while its net loss rose by  53%, which actually amounts to 1 cent per share. According to expectations from analysts, its revenues were expected to rise by 30 cents per share, whereas it rose by as much as 55 cents a share.
LinkedIn has said that it has revised its total revenue for this financial year to $2.94 billion from $2.90 billion.