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TheStreet Open House

LinkedIn (LNKD) Responds to Hacking Allegations

NEW YORK (TheStreet) -- Professional networking site LinkedIn  (LNKD) has responded to a class action lawsuit that alleges breaches of user privacy. According to the lawsuit, the four plaintiffs, former LinkedIn account-holders, object to the company's "disturbing practice of accessing users' third-party email accounts" and sending marketing emails to contacts on their behalf.

"Quite simply, this is not true," said Blake Lawit, LinkedIn's senior director, litigation, on the company blog. "We believe that the claims in this lawsuit are without merit, and we wanted to correct the false accusations and misleading headlines."

Lawit says that LinkedIn doesn't access email contacts or send messages or invitations to any of a user's contacts without prior permission.

"Our core value at LinkedIn is Members First. This guides all the decisions that we make when it comes to our members, including how we communicate with them and how we use their data," he said.

LinkedIn has more than 238 million members in more than 200 countries and territories. Much of LinkedIn's growth has been dependent on the default setting which gives the company permission to send invitations to users' third-party contacts.

Shares of LinkedIn closed down 1.78% at $239.56. The stock has ranged in price from $233.16 to $242.75 after opening the day at $242.35. The S&P 500 closed down 0.47%.

TheStreet Ratings team rates LinkedIn as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation: "We rate LinkedIn a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The area that we feel has been the company's primary weakness has been its disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Internet Software & Services industry and the overall market, LinkedIn's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • The gross profit margin for LinkedIn is currently very high, coming in at 86.45%. Regardless of LinkedIn's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LinkedIn's net profit margin of 1.02% is significantly lower than the industry average.
  • Compared to its closing price of one year ago, LinkedIn's share price has jumped by 103.29%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • LinkedIn reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LinkedIn increased its bottom line by earning 19 cents versus 11 cents in the prior year. This year, the market expects an improvement in earnings ($1.53 vs. 19 cents).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Internet Software & Services industry average. The net income increased by 32.8% when compared to the same quarter one year prior, rising from $2.81 million to $3.73 million.

Written by Keris Alison Lahiff.

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