NEW YORK (TheStreet) -- Shares of LinkedIn Corp. (LNKD) are up 1.58% to $223.25 in pre-market trading after Wells Fargo initiated coverage on the online professional network with an "outperform" rating and a valuation range of $260 to $270.
"Though the competitive landscape is fierce, we view LinkedIn as a pioneer in building the largest professionally oriented social network, where benefits accrue to active members, employers and b-to-b marketers," Wells Fargo said.
By acting as the professional identity of record for hundreds of millions of professionals, analysts believe LinkedIn has built a valuable "clean signal" data layer, accelerating the concept of "passive recruiting", and becoming a critical must-have tool for enterprise talent professionals.
Beyond recruitment, Wells Fargo sees substantial opportunity for LinkedIn's marketing and sales solutions propelled by the company's recent success in building out a content publishing platform.
"Our base case model assumes LNKD will post a 31% 2014-2016 revenue CAGR, while growing adjusted EBITDA margin to 28.4% in FY'16 from an estimated 26.3% for FY'14. Our base case model calls for non-GAAP EPS (ex SBC) of $1.96 in FY'14 and $2.58 in FY'15," Wells Fargo analysts said.
"The midpoint of our valuation range equates to 40.2x and 31.4x our FY'15 and FY'16 EBITDA estimates, respectively, representing a premium valuation to the mid-range of our coverage group. We believe a premium is merited given LNKD's dominant U.S. position, multi-segment revenue opportunity, and international growth optionality," they added.
Separately, TheStreet Ratings team rates LINKEDIN CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate LINKEDIN CORP (LNKD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 28.6%. Since the same quarter one year prior, revenues rose by 44.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- LNKD has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.44, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for LINKEDIN CORP is currently very high, coming in at 86.82%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.75% is in-line with the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 26.8% when compared to the same quarter one year ago, falling from -$3.36 million to -$4.26 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness 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.
- You can view the full analysis from the report here: LNKD Ratings Report