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TheStreet Open House

LinkedIn (LNKD) E-Mail Service Sparks Security Concerns

Stocks in this article: LNKD

NEW YORK (TheStreet) -- LinkedIn's (LNKD) new e-mail service, Intro, is sparking chatter of its own that the site isn't adequately outfitted equipped with security platforms to fend off viruses and cyberspying while protecting a user's privacy.

The e-mail service, which is optional, syncs with a users' personal e-mail app thereby enabling LinkedIn to embed profile information for each e-mail contact.

However, after its debut last week, analysts became concerned that the feature filtered personal e-mails through LinkedIn servers before social networking information was embedded.

Writing for Forbes, James Lyne, head of research at one of the world's largest security firms Sophos, said, "LinkedIn's new Intro service has put up a big sign advertising to cyber criminals, nation states and others 'hack here, we've got loads of juicy data'. The architecture of its new service is innovative but compromises your security and privacy". 

Security consulting firm Bishop Fox also took arms against the application. On its company blog, it wrote, "Our recommendation is don't introduce Intro into your environment." 

In its own blog post, the social network sought to explain the measures taken to keep the data safe. Precautions include an isolated Intro-specific network and numerous extensive test periods, both by internal employees and external security auditors.

"When the LinkedIn Security team was presented with the core design of Intro, we made sure we built the most secure implementation we believed possible. We explored numerous threat models and constantly challenged each other to consider possible threat scenarios," wrote Cory Scott, senior manager of information security at LinkedIn.

The Mountain View, Calif.-based company has not been immune to past security breaches, including in 2012 when hackers stole 6 million passwords.

LinkedIn, which is scheduled to report its third-quarter earnings after markets close Tuesday in New York, was dropping 0.6% to $239.27 in mid-day trading, cutting its 2013 advance to 110%.

TheStreet Ratings team rates LinkedIn Corp as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate LinkedIn Corp (LNKD) 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. Compared to other companies in the Internet Software & Services industry and the overall market, LinkedIn Corp's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LinkedIn Corp is currently very high, coming in at 86.45%. Regardless of LNKD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LNKD's net profit margin of 1.02% is significantly lower than the industry average.
  • Compared to its closing price of one year ago, LNKD's share price has jumped by 126.21%, 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.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than 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.
  • LinkedIn Corp 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 Corp increased its bottom line by earning 19 cents a share vs. 11 cents a share in the prior year. This year, the market expects an improvement in earnings ($1.53 vs. 19 cents).

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