LinkedIn, LNKD, Stock Down 5 Percent Despite Blockbuster Earnings

Shares of LinkedIn Corporation (NYSE: LNKD) traded down about 5 percent in today’s after-hours session. The Mountain View, California-based social network reported second quarter 2015 financial results after the close of regular trading today.

Analysts who follow LNKD had been forecasting per share earnings of $0.30 and revenues of $679.8 million. LinkedIn management reported actual EPS of $0.55 and revenues of $711.7 million beating expectations by 83 percent and 4 percent respectively. The 83 percent LNKD EPS beat demonstrates particular strength on the part of management.

Quarterly revenues for LinkedIn Corporation.

Research firms had been forecasting third quarter LNKD EPS at $0.43 on revenues of $743.7 million and full-year LNKD EPS at $1.93 on revenues of $2.91 billion.

This evening, LinkedIn management provided third quarter and full-year LNKD per share earnings guidance of $0.43 and $2.19 respectively. The full-year 2015 LNKD EPS guidance is notably above the $1.93 expected from Wall Street.

Still, the market reacted with ambivalence and sent LNKD shares down close to 5 percent. Going into the report, LNKD shares were pretty much even on the year, down about 1 percent.

LNKD shares in 2015.

LinkedIn provided third quarter revenue guidance of $745- to $750 million and full-year revenue guidance of $2.94 billion, again nicely above previous expectations.

It is often said that a market’s reaction to news is more important than the news itself. Fellow social networks Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) also sold-off on their earnings. Was the market looking for an even bigger EPS beat from LNKD? Was it hoping that LinkedIn sales guidance would be even higher, than the already higher guidance given? Is there underlying weakness that is just beginning to show itself in FB, TWTR and LNKD shares?

It is also said that one day does not a rally make or break — after-hours markets are notoriously fickle. Trade in LNKD shares tomorrow may provide a more meaningful indication of investor sentiment.

LinkedIn earnings are valued highly by the market and have become so because they have consistently offered superior EPS growth to most other companies. The forward-looking 2016 price/earnings ratio for LNKD shares is a remarkably high 67.81. It also carries a price to earnings growth ratio of 2.91: again extremely high.

Stocks that produce large share price increases, like LNKD, tend to have high PE and PEG ratios. The market puts a premium on quality. Over the past five years, LinkedIn management has grown LNKD EPS at an average annual rate of 78.9 percent. Over the next five years, annual LNKD EPS growth was seen at 48.3 percent, before this evening’s announcement.

The average analyst firm rating on LNKD shares before today was 2.0, where 1.0 is a strong buy and 5.0 a sell. The average LNKD price target among the 37 firms publishing them was $254.22 and ranged from $172 to $307. Revisions to analyst LNKD EPS estimates and share price targets are likely.

[Photo by Justin Sullivan/Getty Images – Screenshot Courtesy LinkedIn Corporation]