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LinkedIn Slashes Guidance; Shares Plunge
Professional social network cites currency changes, advertising headwinds
By Deepa Seetharaman
LinkedIn Corp. sharply lowered its forecast for the year, citing a stronger dollar and weaker demand for traditional advertising, sending its shares down nearly 20% Friday.
The Mountain View, Calif., professional social network said it now expects to post full-year earnings of $1.90 a share, excluding certain expenses. Just three months ago, LinkedIn said it expected earnings on the same basis of $2.95.
For revenue, LinkedIn projected $2.9 billion for the year, down from its previous forecast of $2.93 billion to $2.95 billion. LinkedIn said the stronger dollar would shave $50 million from its earlier projection. About 39% of the company’s revenue comes from outside the U.S.
Slower ad spending and an internal reorganization were among the factors that would reduce revenue by an additional $30 million. In particular, executives cited lower spending on display advertising, which fell 10% in the first quarter.
“We began to see steeper deterioration in the first quarter,” Chief Financial Officer Steve Sordello told investors during a conference call. He said the downturn was most pronounced in Europe, where a shift in ad-buying habits “caused a drop in demand for our traditional display products.”
Executives said expanding, and reorganizing the sales forces, and additional spending on research and development would affect results through the middle of this year. LinkedIn said 60% of its customers got a new account representative in the first quarter.
Shares of LinkedIn, which were up 60% over the past year through Thursday, fell 19% to $203.32 in morning trading Friday.
For the recently completed first quarter, LinkedIn reported a steeper loss of $42.5 million, or 34 cents a share, compared with a loss of $13.4 million, or 11 cents a share, in the same period a year earlier.
Revenue increased 35%, to $637.7 million, from $473.2 million in the year-earlier period.
LinkedIn’s biggest source of revenue is its talent-solutions business, which primarily serves corporate recruiters. Revenue in that unit rose 36%, to $396.4 million.
The marketing-solutions unit, which primarily sells advertising on LinkedIn properties, grew faster, at 38%, to $119.2 million. Executives said the growth was propelled by “sponsored updates,” smaller ads it places in users’ feeds.
“Sponsored updates just continues to grow very rapidly, much faster than other components in marketing solutions,” Mr. Sordello said. He said such ads now account for roughly 40% of the unit’s revenue, while traditional display ads fell below 50% of the unit’s revenue for the first time.
Executives said the magnitude of the decline in display advertising was a surprise, because the division was a strong spot last year.
LinkedIn’s disappointing advertising revenue came two days after Twitter Inc. surprised investors with weaker-than-expected growth in ad revenue on that social network.
For the current quarter, LinkedIn forecast earnings-per-share of 28 cents, excluding certain expenses, and revenue between $670 million and $675 million. Analysts had expected LinkedIn to log a per-share profit of 74 cents on the same basis and revenue of around $718 million, according to S&P Capital IQ.
LinkedIn also said its forecast was affected by its $1.5 billion cash-and-stock deal announced earlier in April to buy lynda.com Inc., an online library of video tutorials.
The acquisition is part of a broader effort by LinkedIn to persuade users to spend more time on the site beyond updating their resumes and looking for jobs. Just 21% of U.S. adults visit LinkedIn at least monthly, much lower than Facebook Inc.’s 70%, according to a survey by Forrester Research last year. LinkedIn has emphasized original content created by “influencers” on the site, and incorporated new types of media on its site, such as presentations on Slideshare, a company it acquired in 2012.
LinkedIn said it had 364 million members in the first quarter, up 23% from a year earlier.
Colin Gillis, an analyst at BGC Partners, said the lynda deal will hurt LinkedIn’s profit margins. But he thought the stock market selloff was more severe than warranted.
“It’s not like they’re losing share to Google Plus,” he said, referring to Google’s underperforming social network. “The market had been giving free hall passes earlier in the reporting season,” he said of tech companies with disappointing earnings. “But that sentiment has changed a bit now.”
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