Why the LinkedIn (LNKD) Selloff Is Overkill

NEW YORK (TheStreet) -- The reaction was swift and it was brutal. Shortly after posting 2014 guidance below analysts' expectations, LinkedIn (LNKD) tumbled as much as 10% before opening Friday morning 8.7% lower to $204.

The Mountain View, Calif.-based company forecast full-year revenue as high as $2.05 billion, short estimates for $2.16 billion, according to analysts polled by Thomson Reuters. For the first quarter, sales guidance between $455 million and $460 million missed consensus by as much as $10 million.

This isn't the first time management has been conservative on guidance which it managed to exceed. And if it's not the last, investors might need to get accustomed to these quarterly speed bumps. After all, since listing in mid-2011, LinkedIn shares have gained 125.7% and that's not because the company failed to deliver come earnings season.

In the three months to December, the professional services Web site posted net income of 39 cents a share, a penny over consensus. Revenue jumped 47% year over year to $447.2 million, $10 million higher than expected.

LinkedIn also announced its acquisition of Bright, an employment search engine which uses proprietary analytics to hone candidate results.

For the most part, analysts took the LinkedIn forecasts with a grain of salt, acknowledging LinkedIn's history of lowballing and accepting lower profitability and higher investment expenses as necessary to long-term growth.

Jefferies reiterated the stock as a "buy" with a price target of $280.

"Each segment continues to grow faster than the markets in which it competes," wrote the team in a report. "LinkedIn's move towards content marketing such as sponsored stories will be a big tailwind driving up pricing in our view, and early signs point to higher engagement rates than core Display.

"The company has tripled its sales team to sell its Sales Solutions product and that should ramp in 2014."

Jefferies said it expects the yet-to-launch Sales Solutions to have huge potential. The customer relationship platform will present sales teams with the opportunity to use LinkedIn to generate leads.

"Sales Solutions, which aims to be an enterprise CRM solution, will be more aggressively invested in and sold starting in 2014. Management is encouraged by the effectiveness of its early use in shortening sales cycles, and increasing conversion rates," wrote Jefferies analysts.

Likewise, Pacific Crest Securities kept its "outperform" rating with a $275 price target, noting that while estimates were lower there is "much more to look forward to."

"The shortfall can be explained by: (1) the acquisition of Bright (and a push into job listings) and (2) increased investment in sales and new opportunities (China, Sales Solutions, etc.). The lack of discussion on new opportunities has been disappointing and looked to be moving at "Enterprise Speed" not "Internet Speed." The company's more forceful identification of new opportunities is a great step for investors to understand what the "next big thing" is for LinkedIn," wrote analysts Evan Wilson and Bryan Liang.

"LinkedIn holds a very strong competitive position. Little else compares to its flagship product, LinkedIn Recruiter. We also believe LinkedIn will pursue big opportunities as an advertising and sales tool."

Cantor Fitzgerald reiterated a "buy" rating but lowered its price target to $240 from $260 on lower revenue and higher investment expenses.

"Outlook remains intact," wrote analyst Youssef Squali in a note. "Robust growth in corporate customers, strong user-engagement, and a compelling value proposition for users/advertisers should drive outsized revenue growth and margin expansion over time."

Credit Suisse retained an "outperform" rating but lowered its price target to $274 from $288 on its measure of discounted cash flow (DCF) and increased investments.

"Our investment thesis, which is contingent on LNKD's - 1) large and expanding TAM, 2) low penetration rate for Talent Solutions, 3) longer-term opportunity to migrate to a pay-per-transaction model, and 4) the opportunity to leverage data to drive inventory pricing higher -- remains unchanged," wrote analysts in a note.

A touch more bearish, UBS maintained a "neutral" rating and downgraded its price target to $225 from $250 on the view "forward guidance causes concern."

"We do not expect LinkedIn's management to change their focus from developing the platform for long term goals of member growth, user engagement & the global economic graph. In the medium term, we expect those goals to keep margins depressed ahead of a possible revenue reacceleration. As long as LinkedIn faces decelerating revenue growth and a lack of margin leverage, we expect the stock to be range bound," wrote analyst Eric Sheridan in a report.

Must read: We've Seen This Before: LinkedIn Tumbles as 2014 Forecast Misses Forecast

TheStreet Ratings team rates LINKEDIN CORP as a Sell with a ratings score of D+. The team has this to say about its recommendation:

"We rate LINKEDIN CORP (LNKD) a SELL. This is driven by a few notable 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 company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and disappointing return on equity."

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