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LinkedIn (LNKD) Lost 39% in the Last 2 Months: Here's Why

It seems that investors are losing confidence in LinkedIn Corp. LNKD. Shares of this Zacks Rank #4 (Sell) company have plunged over 39% since its last earnings announcement when it gave a disappointing guidance for 2016.

LinkedIn, the online professional network which allows members to create, manage, and share their professional identity in the virtual world, has been in troubled waters ever since it reported fourth-quarter 2015 results on Feb 4. Though earnings and revenues managed to top the respective Zacks Consensus Estimate, the weaker-than-expected guidance left investors panic-stricken.

For the first quarter, LinkedIn expects revenues around $820 million, much lower than the Zacks Consensus Estimate of $829 million. The company expects full-year 2016 revenues in the range of $3.60 billion to $3.65 billion (mid-point being $3.625 billion), which was again lower than the Zacks Consensus Estimate of $3.688 billion.

The company projects first-quarter earnings per share to be 55 cents, while for the full year, it is estimated in the band of $3.05–$3.20. The Zacks Consensus Estimate, at the time of issuing the guidance, was pegged at 72 cents and $3.73, respectively.

The weak outlook triggered a downtrend in the Zacks Consensus Estimate, reflecting declining optimism in analysts regarding the stock’s future performance. Over the last 90 days, estimates for 2016 have declined from earnings of 75 cents to a loss of 26 cents, while for 2017, the same has plunged from $3.02 to 81 cents.

Furthermore, issues plaguing LinkedIn include a combination of internal and external factors. We believe that there is a possibility that Facebook FB will soon pose a bigger challenge in the race to establish its leadership position in the professional networking space.

Moreover, companies like Alphabet Inc. GOOGL and Microsoft MSFT have been regularly introducing innovative services. These could bring about a rapid change in the scenario and intensify the competition, thereby affecting LinkedIn’s growth strategy.

Security is another major concern for LinkedIn. If, due to some external attack, security measures are compromised, the company will lose its reputation as well as memberships, and ultimately the platform’s popularity. Like any other social networking company, LinkedIn has been under the purview of the federal investigating agencies as allegations of data hacking cropped up.

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