Event: LinkedIn (LNKD) reports Q2 results tonight after the close. The options market is implying about a 11% one day move, which is shy of the 4 qtr avg of about 13.5% and about in line with the 11% average since the company went public back in 2011. If you wanted to buy the implied move, with the stock at $225, the July 31st 225 straddle (the call premium plus the put premium) is offered at $26, you would need a move above $251, or below $199 to make money on tomorrow’s close.
Price Action / Technicals: The stock is down 3% as I write today in sympathy with Facebook’s (FB) post earnings decline, which is kind of add when you consider FB is only down 2% on the day. Today’s decline places the stock down 2% on the year, and very near the mid point of the 52 week range of about $180 to $275:[caption id="attachment_55767" align="aligncenter" width="600"] LNKD 1yr chart from Bloomberg[/caption]
Sentiment: Wall Street analysts are very bullish on the stock with 33 Buy ratings, 7 Holds and only 1 Sell with an avg 12 month price target of about $255. Short interest is at about 4% of the float.
Estimates and Forecasts from Bloomberg:
-2Q adj. EPS est. 30c (range 24c-51c); LNKD forecast 28c
-2Q rev. est. $679.9m (range $662m-$694m); LNKD forecast $670m-$675m
-2Q Ebitda est. $123.2m (range $118m-$130m); LNKD forecast $120m
-3Q adj. EPS est. 43c (range 22c-71c)
-3Q rev. est. $744.3m (range $728m-$762m)
-3Q Ebitda est. $155.1m (range $133m-$170m)
-2015 adj. EPS est. $1.94; LNKD forecast ~$1.90
-2015 rev. est. $2.91b; LNKD forecast ~$2.9b
-2015 Ebitda est. $636.6m; LNKD forecast ~$630m
Mark Mahaney, RBC’s internet analyst listed the following areas of focus on tonight’s report:
Key factors to focus on: 1) Talent Solutions revenue and metric trends – We expect Q2 Talent Solutions revenue to grow 30% Y/Y to $418MM, on the back of 31% Y/Y growth in the number of Corporate Solutions customers to 36,764 at the end of Q2 (implying 2,000 Net Adds);
2) Marketing Solutions revenue and metric trends – We anticipate 22% Y/ Y segment revenue growth to $130MM in Q2, driven by 29% Y/Y growth in the number of Page Views and a 5% Y/Y decline in Revenue per Page View; and
3) Premium Subscription revenue and metric trends – We are modeling Q1 Premium Subscription revenue growth of 21% Y/Y, growing to $127MM in revenue, with 21% Y/Y growth in registered members to 379MM.
We are expecting $675MM in revenue, $121MM in EBITDA, and $0.29 in Non-GAAP EPS. Our revenue estimate is at the upper end of the company’s guidance range ($670–675MM) but below consensus at $680MM. Our EBITDA estimate is slightly above the company’s guidance of $120MM but also below consensus at $125MM. Our Non-GAAP EPS estimate of $0.30 is slightly below the Street and is slightly above guidance of $0.28. For context, our estimates imply 26% Y/Y revenue growth and a 17% Y/Y EBITDA decline (or ~930 bps of Y/Y margin decline).
Implied Volatility Snapshot: The recent post earnings movement in AMZN, GOOGL, NFLX & TWTR has spooked options market makers, causing a huge ramp in options prices over the last month with 30 day at the money implied vol going from the 52 week lows at 215 to new 52 week highs at 60%:[caption id="attachment_55768" align="aligncenter" width="600"] LNKD 1yr chart of 30 day at the money IV from Bloomberg[/caption]
Following the results, short dated options prices should fall back to the low 30s, making calendars attractive for those looking to set up directional trades into the results, or for calls sales against existing long stock.
Hypothetical Trades depending upon your directional inclination:
LNKD ($225) Buy July 31st / Sept 250 Call Calendar for~ $3
-Max risk is $3 on a move well below current levels, or well above $250.
-Ideal Scenario is that the stock moves up in to the strike of the call, inline with the implied move and net the difference between the option that you are short that expires on tomorrow’s close and the longer dated call that will pick up deltas to offset the post earnings vol crush and have a considerable amount of time value left.
LNKD ($225) Buy July 31st / Sept 200 Put Calendar for ~$2.50
-Max risk is $3 on a move well above current levels, or well below $200.
-Ideal Scenario is that the stock moves down to the strike of the puts, inline with the implied move and net the difference between the option that you are short that expires on tomorrow’s close and the longer dated put that will pick up deltas to offset the post earnings vol crush and have a considerable amount of time value left.
RATIONALE For Both Trades: While options prices are elevated, Facebook has massively under-performed its implied move of 8.5%, which should cause traders looking to express long premium directional views into tonight’s print to take pause. The calendar trades can also help finance a longer term directional view. If you are of the mindset that the stock could trade above the implied move in the coming weeks/months but may under-perform the implied move in the next 24 hours, this is the way to trade it.
Lastly, one trade I’d consider as purely directional for $200 tomorrow, the July 31st 220/200/180 Put Butterfly for $4, profitable between $216 and $184, max gain of $16 at $200 on tomorrow’s close. Decent risk reward if you thought the stock was poised for a re-test of the nice round number. At the moment its a bit of a coin toss on direction in my opinion.