$LNKD Q2 Earnings Preview

by Enis August 1, 2013 11:16 am • Commentary

Event:  LNKD reports their fiscal Q2 earnings tonight after the close.  The options market is implying about a 9.25% one day move, which is below both the 4 qtr avg of about 12.5% and the 8 qtr avg of about 10.5%.

Sentiment:  Wall Street analysts are somewhat bullish on the stock, with 16 Buys, 18 Holds and No Sells.  However, LNKD is up 80% in 2013, so analysts’ average price target of 205 is actually below the stock’s current level.  Short interest is minimal, at 4% of float.

Options Open Interest:  Open interest is about evenly split between calls and puts.  1 month volume has been skewed towards calls by a ratio of 1.5 to 1.  The Aug16th 200 calls, Aug16th 175 puts, Aug16th 210 calls, Aug16th 180 puts, and Nov 205 calls are the lines with the most open interest.

Price Action / Technicals:  The I posted a Chart of the Day on LNKD 2 weeks ago highlighting the importance of the May high around $203.  Since then, the stock has cleanly broken out above that level:

Daily chart of LNKD, 50 day ma in pink, Courtesy of Bloomberg
Daily chart of LNKD, 50 day ma in pink, Courtesy of Bloomberg

With the stock at all-time highs, there is no resistance on the upside.  On the downside, the $203 is initial support.  The longer-term support area comes into play near the 50 day moving average, around $185.

Fundamentals:  LNKD is the largest professional network on the web, boasting more than 200 million members worldwide.  The stock has more than quadrupled since its IPO in 2011 at $45.  It is projected to earn $1.50 in 2013, $2.10 in 2014, and $3.12 in 2015.  However, LNKD is one of the “platform” stories, where investors are more interested in the long-term profitability of the platform rather than traditional short-term valuation metrics.

Here is a good synopsis of analyst expectations into today’s earnings report from Cadie Thompson of CNBC.com:

For the eight quarters LinkedIn has been a public company, it has beat analysts’ earnings and revenue estimates. But that perfect record has driven Wall Street to push its projections beyond the company’s forecast, increasing the pressure to deliver big results.

“We also note that consensus estimates for revenue and EPS, including ours, are above the high end of the company guidance, but the company has a history of actual results materially exceeding consensus,” said Colin Gillis, an analyst for BGC Partners, said in a note Tuesday.

LinkedIn is scheduled to report second-quarter earnings after the bell Thursday, and analysts forecast earnings per share of 31 cents on revenue of $354 million, according to Thomson Reuters. In year-earlier quarter, the company reported EPS of 16 cents on revenue of $228 million.

The company handily beat estimates in the first quarter, but the stock was actually lower.  As with other platform stories, membership growth and revenue growth might be the more important metrics to watch.

Volatility:   Implied vol is up into the event but earnings cycles have seen lower and lower IV highs since the stock went public. That’s due to 2 main factors. One, more is known about the company and there’s a tighter range of estimates and two, the stock price is higher which will tend to force IV to be lower due to the human psychology of what constitutes “big moves” in percentage versus dollar amounts. Here’s a look at the last two years:

Screen Shot 2013-08-01 at 9.09.17 AM
from LiveVol Pro

Aug vol is is about 66 with Sept about 47. Both are likely to be under 40 following the event.