New Trade LNKD: Q4 Report After the Bell, Our Preview & Way To Play

by Dan February 9, 2012 3:12 pm • Commentary

Update:  Stock is basically flat on the day heading into the print tonight, which could change fairly quickly when you consider the almost 6% rally that GRPN had in the last hour of the day into their report last night.  This is a really tough call in my opinion and investors should be a bit spooked looking at GRPN down almost 18% today taking out all of the recent “Facebook” premium.   As for trades into LNKD’s Q4 report tonight I think you can stick to one that has been working in these high vol, high short interest low float names…..

I have had a tough go in this name, in December I bought a Feb 55/45 Put Spread that is essentially worthless, but I do feel that the valuation and the prospects for their business get worse as time goes on. It also appears that no one really has a clue how much stock comes off of lock up in the next coming weeks, but it could be 10s of millions.


LNKD ($76.70)  Buy Feb10th weekly / March 67.5 Put Spread for 2.55

-Sell Feb10th weekly 67.5 Put at .75

-Buy March 67.5 Put for 3.30

Max Risk $2.55

Break-Even on Feb10th weekly Expiration:

If stock above 67.5 the Feb10th weekly puts expire worthless and you own March 67.5 put for 2.55

If stock blows through the 67.50 strike than you essentially make or lose the difference btwn the 2 options.

Worst case is that the stock has a big rally and both options lose a ton of value, but your max risk is 2.55

If the stock is down in line with the implied move that gets you to about $69, right above the strike that I have isolated, this would be a good scenario if you wanted to own puts for the lock up expiration.

Obviously I have no clue whether they will beat and raise and this trade is primarily predicated on the thought that the stock overhang could likely determine the direction of the stock in the near term.

Original Post Feb 9th, 2012 at 9:43am:  LNKD: Q4 Report After the Bell, Our Preview, Trade To Come

LNKD ($75.60 )

Event: company reports their Q4 after the close tonight.

Options Stuff:

-the options market is implying about a 10% move vs the 5.1% average move following its only 2 earnings reports (both lower) since its May 2011 IPO

LNKD price action around the last 2 earnings events from LiveVolPro


-Vol is not cheap in the name with 30 day implied vol at about 67 vs the 30 day and 60 day realized Vol of about 43 and 52 respectively.

-Yesterday options volume was running fairly high in the name with about 2.5x normal volume, and not all that surprising put volume nearly doubled that of calls with 18,300 to 9,600 respectively.  

Price Action & Sentiment:

-The stock is up 21.5% ytd and up 70% since its May 2011 IPO.  The stock recently benefited from Facebook’s filing for an IPO, rallying almost 15% at one point in the last week, until it started to come back to earth in the last couple trading days, re-tracing a portion of the move.

-Wall Street Analysts are fairly mixed on the name with 9 Buys, 8 Holds and only 1 Sell with an avg 12 month price target of about $84.00

-Short interest remains high at about 17%, but down significantly since the Nov 2011 secondary offering that more than double the amount of shares offered to the public since its May 2011 IPO.

Q3 Results and Q4 Guidance:  On Nov 3rd LNKD reported Q3 results came in better than consensus with $139.5m in revs vs street at $127m, and EPS of (.02) loss vs street at (.03)…The company gave rev guidance that was at its mid point $156m, above consensus of $147m but ebitda guidance that showed little upside to consensus.

Q4 Expectations:  Citi Analyst Mark Mahaney (Neutral $80 12 month price target) had the following to say about the print in a note to clients dated Feb8th 2012:

LNKD To Report On Thursday February 9th – We are looking for revenue of $158MM, EBITDA of $21MM, and GAAP EPS loss of $0.03, roughly in-line with consensus expectations at $160MM, $21.1MM, and ($0.01) respectively. Based on our model sensitivity work, intra-quarter datapoints, and channel checks, we view Street Q4 estimates as ballpark reasonable, tho with much greater room for upside vs. downside variance.

Our LNKD fundamentals call for Q4 is Negative – We are expecting Y/Y reported revenue growth to decelerate (~ 30 pts) to 94% Y/Y in Q4, against a flattish comp. We are also looking for EBITDA margin to decline to 13.2% (vs. 17.3% in Q4:10 and 17.7% in Q3:11), primarily due to LinkedIn’s investment ramp-up in Sales & Marketing and in Product Development.

The Main Event (in my humble) Opinion:  In November shares of LNKD got battered after the company announced that they would try to manage the expiration of the 180 lock-up of shares from controlling shareholders.

When the company went public in May 2011, they sold 9million Class A common shares (6million primary and 3million secondary) or a little less than 10% of the company’s outstanding shares.   IN a note to clients back on Nov 15th 2011, Barclays Capital Analyst did the following analysis on the lock-up:

We estimate that roughly 93.4 million shares, or 97% of the total outstanding common stock, have been under 180 day lock-up agreements and, thus, have not been tradable.

The 180-day IPO lock-up expires on November 20, 2011. We estimate that this applies for roughly 93.4 million of the total 96.3 million total common shares outstanding.  Of the total shares outstanding, we estimate that roughly 42 million would be freely tradable without restriction.

On November 3, 2011, LinkedIn filed a Form S-1 for a follow-on offering of up to $500million Class A stock, including up to $100 million in new stock issued by the company and the remainder from selling shareholders. Last night, the company filed an amended S-1raising the proposed offering to up to $700 million and detailing the offering at 8 million shares, including 1.27 million primary and 6.73 million secondary (we note that on average insiders and affiliates are selling roughly 10% of their stakes in LNKD, with the exception of
Bain Capital, which is selling 100%).

In the filing, the company noted that the holders of approximately 56 million shares, including all of the directors and executive officers and the selling stockholders, have signed additional 90-day lock-up agreements.

Therefore, following the follow-on offering, the public float should increase from 2.9 million shares to 40 million shares (i.e., 96.3 million less the 56 million that have agreed to a further 90-day lock-up).

MY TAKE: obviously this is not a stock that I would ever buy and I think with the stock up on the Facebook spike there could be an interesting opportunity to play a time spread in front of the uncertainty of the extended lock up due some time in the next few weeks….we should get color on this on tonight’s call.

Check back later for some trade ideas.