LinkedIn’s stock hasn’t been doing nearly as well as expected, even though the company beat Wall Street’s expectations for its Q4 earnings in 2015. The company’s stock ultimately fell by nearly 30 percent after they issued a low Q1 2016 revenue guidance.
Their fourth quarter in 2015 was off the charts, which is the main reason this comes as such a shock to investors. The company said they saw adjusted earnings of 94 cents per share on $862 million in revenue during that quarter, despite analyst predictions that they would earn just 78 cents per share and gross $858 million during the three-month period. The actual earnings added up to a 34 percent increase from the previous year’s Q4 earnings.
But after a deliverance of guidance that was much weaker than expected, the company’s stocks fell by 28 percent in after-hours trading. The company estimated a revenue of $820 million in the first quarter of 2016, which put non-GAAP earnings at about 55 cents per share. Wall Street’s predictions put the company at $868.3 million in the first quarter and 75 cents per share. With such a vast difference in pricing, it’s no surprise that investors lost a little faith in the company.
As part of their guidance initiative, LinkedIn CEO Jeff Weiner told CNBC the following.
“Our strategy in 2016 will increasingly focus on a narrower set of high value, high impact initiatives with the goal of strengthening and driving leverage across our entire portfolio of businesses. Our roadmap will be supported by greater emphasis on simplicity, prioritization, and ultimate ROI and investment impact.”
The largest reason for the slower revenue stream is due to the company’s emphasis on sponsored content. They’ve been receiving unprecedented pressure from their international markets, thanks to the ups and downs of global economic conditions.
Even still, LinkedIn executives remain positive about their current situation. LinkedIn CFO Steve Sordello told Investors, “We’re making good progress on our initiatives. Our focus is on investing intelligently to capture the large, addressable opportunity ahead of us.”
Currently, LinkedIn serves a variety of purposes for individuals and companies alike, but there are three main revenue streams: Talent Solutions, Marketing Solutions, and Premium Subscriptions.
Their largest source of revenue is Talent Solutions, in which companies use LinkedIn’s pages to recruit employees. Companies can post their brand on a page and then list all relevant job openings. Revenue from this sector of the company grew 45 percent in the last year to reflect earnings of $535 million.
Market Solutions is LinkedIn’s version of selling ads. Companies can use this format to advertise and LinkedIn gets extra revenue every time a consumer clicks on an ad. Earnings here rose 20 percent to $183 million.
Premium Subscriptions, a service for which users pay a fee for enhanced services, increased 19 percent to $144 million.
These three sources of revenue did extremely well last year, but without a strong first quarter projection from the company, investors are currently concerned about LinkedIn stocks. However, if the company chooses to renew their focus and double their efforts, interest in these stocks is expected to rise shortly.
A decrease in shares throughout the professional social network have fallen approximately 26 percent on the whole in the last three months, showing that it may not be the company’s fault entirely for their decline in stocks. Increased pressure from both the international markets and Wall Street have put a toll on LinkedIn and the rest of the professional network, trending even worse than some of the major U.S. indexes projected.
[Image via Justin Sullivan/Getty Images]