LinkedIn slumps again after Morgan Stanley cuts stock rating

For LinkedIn, the Ides of March came a day late.

On Wednesday, LinkedIn’s shares continued their more-than-a-month-long slide, falling more than 5 percent after Morgan Stanley analyst Brian Nowak cut his rating on the company’s stock to equal weight, or neutral, from overweight. Nowak also slashed his price target on LinkedIn’s stock to $125 a share from $190.

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Nowak said LinkedIn wasn’t showing much to give him a reason to retain the faith he had in the company’s ability to build and make money from its four main businesses: Talent Solutions, Marketing Solutions, Premium Subscriptions and Lynda, an online educational company that LinkedIn acquired in April 2015 for $1.5 billion.

“We were wrong,” Nowak said, in a research note explaining his views on LinkedIn. “We have overestimated LinkedIn’s ability to grow its platform and underestimated the investment needed to grow.”

Much of the recent concerns with LinkedIn stem from the comany’s disappointing fourth-quarter results, and outlook for its current quarter, which LinkedIn delivered Feb. 4. The next day, investors drove down LinkedIn’s stock by almost 44 percent, and wiped out $10 billion of the company’s market value.

Because of LinkedIn’s forecast, Nowak said there is evidence that the company is seeing a slowdown in growth among large-size businesses, and having difficulty retaining those customers it already has. Nowak said this has put LinkedIn in a position where it will have to ramp up its investments in its Talent Solutions business to improve its standing with larger customers, and such a move will end up putting pressure on its earnings potential.

“LinkedIn is finding it needs to increase its investment spending to drive forward growth,” Nowak said. “In our view, this speaks to the rising cost of growth, increased execution uncertainty, and margin pressure to come.”

While Nowak was largely down on LinkedIn’s prospects, the view of Piper Jaffray analyst Gene Munster points to how Wall Street is not united on how to take LinkedIn at the present time.

Munster said that despite the concerns about LinkedIn’s Talent Solutions business, the company still has more than 300 million user profiles that its customers can draw up for hiring and selling services, and that LinkedIn usually errs on the side of being conservative when it comes to predicting growth for that business.

“LinkedIn remains relatively unchallenged  in its Talent Solutions segment,” Munster said, who noted that it wouldn’t be surprising to see the company report Talent Solution growth that exceeds LinkedIn’s earlier estimate of a 20 percent increase this year.

Photo: LinkedIn CEO Jeff Weiner (AP Photo/Marcio Jose Sanchez)


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  • sd

    I’ve been on Linkedin for years and I’m still not sure just what it’s supposed to be.

    If it’s for professional networking, Linkedin needs to optimize the format so users can leave quick bits about what’s going on in their jobs or to ask questions of their network or special interest groups. But I haven’t figured out how to categorize my contacts in other business areas so I’m not wasting their time on specific updates or questions to which they quite likely cannot respond.

    Their “news” feed always seems to be a day late and a dollar short and too many users’ remarks read like comment spam — they could be applied to any item and don’t advance thought at all. Like Facebook, the largely-sequential nature of commenting makes it hard to carry on a conversation. Anyway, there seems to be little interaction from authors once they’ve dropped their piece.

    And Linkedin’s continual effort to look like Facebook with Likes and very thinly disguised ads (I’m in IT; why am I seeing posts about companies hawking restored antique boats?) only confuses things more.

    If Linkedin promoted more interaction rather than just pushing their Premium products (quite expensive for Joe and Sue Cubicle, IMHO), they might find more stickiness. Until then, I don’t think they’re going to move the needle much past where they are now.