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Expectations Are High for LinkedIn Earnings

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LinkedIn is performing better than many other social media stocks.

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MINYANVILLE ORIGINAL Following in the footsteps of Facebook's (FB) poor earnings, LinkedIn (LNKD) is set to announce its earnings after today's close. Although Facebook faltered, LinkedIn could surprise investors as LinkedIn experienced 60% subscriber growth in 2011 and 139% corporate client growth. Additionally, ad revenue was $154 million in 2011, higher than Twitter's, and is expected to grow to $400 million by 2016. Despite the company's growth, however, the stock is down 24% since last quarter's earnings. Comparing LinkedIn to the other social media stocks, LinkedIn has a major advantage because of their premium services that connect employers and recruiters with potential candidates. Hiring solutions, LinkedIn's premium service, grew 21% to $103 million in Q1 2012, accounting for 54% of its revenue. EPS is expected to come in at $0.16 per share with revenue between $210 million and $215 million. Finally, unique mobile visitors grew by 275% in Q1, which is a great way for LinkedIn to expand its business and shows that the company is capable of monetizing a revenue stream through the mobile sector. This growth is mainly due to LinkedIn's recently launched iPad app and a mobile redesign.

While LinkedIn has a major comparative advantage over its peers, the company's stock may falter on earnings as the social media industry -- particularly Groupon (GRPN), Facebook, and Zynga (ZNGA) -- continue to lose value. Like Facebook, LinkedIn is expected to slow, but at a reasonable growth rate of 78%, which would be the first time LinkedIn has hit below 100% growth from the previous year's quarter. In addition, roughly 21% of its members are from Europe and 61% located outside the US, so the company may be susceptible to an international recession. Despite LinkedIn's growth prospects, the company is dramatically overvalued with its PE at 579, but the stock is still much higher than the initial IPO price of $60 and it is the only social media stock that seems to be performing well.

Using the Andrew Keene's HIMCRRBTT Trading Plan:

Historical Movement Over the Last Four Quarters:
  • 05/04/12 $109.41 $117.30 $+7.89 (7.2%)
  • 02/10/12 $76.39 $89.96 $+13.57 (17.8%)
  • 11/04/11 $87.50 $82.37 $-5.13 (-5.9%)
  • 08/05/11 $95.52 $91.36 $-4.16 (-4.4%)
  • Average Magnitude of Post Earnings Return 8.8%
  • Implied Movement: 13.7%
  • Measured Move Targets: ATM Straddle, $92.5 weekly ATM Calls and Puts= $11 total
  • Upside Measured Move Target: $92.50 plus $11= $103.60
  • Downside Measured Move Target: $92.50- $11= $81.50
Four Ways to Trade It:

Buying the Movement:
  • Trade: Buying the August weekly $92.50 ATM Straddle for $11 debit
  • Risk: $110 per 1 lot
  • Reward: unlimited
  • Breakeven: $81.50 and $103.50
Selling the Movement (My Trade):
  • Trade: Selling the August weekly 85-80 Put Spread and 105-110 Call Spread for $1.80 total
  • Risk: $320 per 1 lot
  • Reward: $180 per 1 lot
  • Breakeven: $83.20 and $106.80
Bearish
  • Trade: Buying the August weekly 105 Puts for $13
  • Risk: $1300 per 1 lot
  • Reward: $9200 per 1 lot
  • Breakeven: $92
Bullish:
  • Trade: Buying the August weekly 100-105-110 Call Fly, buying the Aug 100 and 110 Calls, selling twice as many 105 Calls for $.40 debit
  • Risk: $40 per 1 lot
  • Reward: $460 per 1 lot
  • Breakeven: $100.40 and $108.60
No positions in stocks mentioned.
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