Event: LNKD reports Q1 results tonight after the close and the options market is implying about an 11% one day move which is almost in line with its 4 qtr avg move of ~10% and the 8 qtr avg move of 10.4%.
Sentiment: Wall Street analysts are fairly bullish on the stock with 25 buys, 15 holds and no sells with an avg 12 month price target of $243, ummm 50% higher than current levels. Short interest has come down dramatically at only about 3.5% of the float.
Options Open Interest: Calls outnumber puts in total open interest, by a ratio of around 1.4 to 1 (112k calls vs. 81k puts), generally in line with the one month average volume. The May17th 190 calls are the single largest line of open interest with 16,000, while the May17th 200 calls are the second largest with 5,000. The largest options trade in the stock in the last month came on April 8th, when a trader paid 2.40 for 12,
Price Action / Technicals: If the whole web 2.0 thing is over, many pundits will look back to LNKD’s all time high back in September of 2013, and the steady downtrend the stock has been in since, with a peak to trough decline (52 week low Monday) of 44% as ground zero for the tech wreck. The stock is down 24% on the year, and up 14% from Monday’s low, and while the chart looks broken, it obviously got a tad oversold on a near term basis. The 2 year chart below shows just how important of a hold it was this week at $150, as there is no technical support until u get down to the Feb 2013 earnings gap at $125:[caption id="attachment_39825" align="aligncenter" width="589"] LNKD 2 year chart from Bloomberg[/caption]
On the downside I would be looking to see if the stock holds $150, or a bit lower at Monday’s 52 week low of about $143 (red line). On the upside, $180 (green) would be a reasonable target, as it was the breakdown level from early April:[caption id="attachment_39826" align="aligncenter" width="589"] LNKD 6 month chart from Bloomberg[/caption]
Implied Vol SnapShot: 30 day implied volatility has spiked into the 60’s into the event. Volatility in May and June vol should fall to 40 or below tomorrow making any long premium bets risky although the implied move of about $13.50 seems more than reasonable considering the recent day to day moves in the stock.[caption id="attachment_39828" align="aligncenter" width="589"] LNKD 2yr chart of 30 day at the money IV from Bloomberg[/caption]
Fundamentals / Valuation: Analysts continue to see upside to current estimates, despite the recognition that the company may continue to issue guidance that is below consensus, as summarized by Goldman Sachs research yesterday in a note to clients yesterday:
We expect LinkedIn to report 1Q revenues of $474mn vs. consensus of $466mn, and EBITDA of $116.2mn vs. consensus of $112mn, both well above management’s guidance. Our channel work suggests Talent Solutions continued to grow customers at 4Q’s rate of net adds, while also benefitting from a sequential increase in ARPS. With LinkedIn hitting 300mn users modestly faster than expected, there could be incremental revenue in premium subscriptions and marketing services as well. We expect typically conservative guidance for 2Q, though with easier comparisons in the marketing services business, which should benefit from the native & mobile ad growth, consensus revisions are likely to be positive. We continue to believe LinkedIn is one of the best positioned companies online and while the premium multiple may remain a liability in the current market, we believe the long term potential for financial out-performance more than justifies that premium.
But here is the rub, despite the stock’s dramatic seven month share price decline, the valuation still looks ludicrous trading at premiums to most of its internet peers and SaaS stocks with en Ev/Sales of about 12x.
My View: Despite the stock’s 6% bounce today, it remains very oversold on a near term basis, and I think it is also safe to say that the share decline reflects generally low expectations into the print. I am going to just copy and paste “My View” from yesterday’s post on YELP as it is exactly what I would say about LNKD:
sentiment heading into the print couldn’t be worse, and it seems like a very tough press on the short side as a relief rally is possible. It is still my view most of these web stocks will be much lower by the end of the year. While many investors who have gotten used to buying dips over the last few years, it is my opinion that the price action over the last few months in many of the high growth/high valuation names is the beginning of the end. Investors have showed their hands and we have not yet hit the revulsion stage of the sell off.
If I had a gun to my head I play for a continuation of the bounce, But would be selling into strength, and short trades could set up nicely at previously mentioned technical resistance levels.
Estimates/Guidance From Bloomberg:
1Q adj. EPS est. 34c (range 23c-45c)
1Q rev. est. $466.6m ($458m-$486m); Feb. 6, LNKD forecast $455m-$460m
1Q Ebitda est. $112.1m; LNKD forecast adj. Ebitda $106m-$108m
2Q rev. est. $505.4m ($485m-$529m)
2Q Ebitda est. $120.9m ($112m-$129m)
2014 rev. est. $2.11b ($2.04b-$2.25b); LNKD forecast $2.02b- $2.05b
2014 Ebitda est. $517.5m ($490m-$574m); LNKD forecast adj. Ebitda ~$490m
NOTE: April 18, LNKD said it has reached 300m members; said it has added more than 23m members since Dec. 31