LinkedIn Corp is no longer the hot technology company many people thought it was.
The company’s shares on Friday plunged the most ever amid a wave of analyst downgrades after the company said its new business lines for sales and marketing tools are not going to grow as fast as most people were predicting — and some initiatives are grinding to a halt.
Investors have been forced to revise their thinking about the company’s prospects and strategy.
“Clearly, we were wrong,” Mizuho Securities analyst Neil Doshi said.
“With a lower growth profile, we believe that LinkedIn should not enjoy the premium multiple it has grown accustomed to,” he added.
Mizuho lowered its price target on LinkedIn shares to US$150 from US$258 and downgraded its rating on the stock to “neutral” from “buy.”
Analysts almost across the board either lowered their price targets, their recommendation or both.
Some, like Doshi, said they were caught off guard by the magnitude of the discrepancy in the company’s sales forecasts and analysts’ estimates.
“In this market, there’s no mercy for a miss,” Monness Crespi Hardt and Co analyst James Cakmak said.
“This is usually not the time to pull the plug, but with our thesis in question, our confidence in the sustainability of the valuation, or expansion from here for that matter, is materially lower,” Cakmak wrote in a note to investors on Friday, changing his recommendation to “neutral” from “buy.”
Shares of Mountain View, California-based LinkedIn fell 44 percent to US$108.38, the biggest decline since the company’s initial public offering in May 2011.
Revenue would be about US$820 million in the first quarter, and US$3.6 billion to US$3.65 billion for this year, the company said on Thursday. That missed analysts’ average estimate for US$867.1 million and US$3.9 billion, data compiled by Bloomberg showed.
While chief executive officer Jeff Weiner has made investments to diversify the business, like acquiring education Web site Lynda.com for US$1.5 billion last year, it would be a while before those efforts contribute meaningfully to revenue.
In the meantime, LinkedIn is facing a slowdown in its marketing-services business, which companies use to find potential customers, show them advertisements and relevant information and generate sales leads. Sales to recruiters, who use LinkedIn to find candidates for jobs, are also slowing.
The company is narrowing its focus in some areas, which is hurting sales. For example, it is discontinuing a tool that helps marketers find leads, incorporating the technology into its sponsored content business instead, contributing to a slowdown in its marketing solutions business. Revenue in the marketing solutions division rose 20 percent in the fourth quarter to US$183 million.
The professional networking Web site is also facing slower economic growth in Europe and Asia, though it said China is its fastest-growing nation for new members.
The company has a standalone app for Chinese users and has devoted much of its efforts over the past year to push deeper into that market. LinkedIn had 414 million users in the fourth quarter, up from 396 million in the prior period.
For the fourth quarter, LinkedIn reported a loss attributable to common shareholders of US$8.43 million, compared with the average estimate for US$50.2 million. Revenue climbed 34 percent to US$862 million, topping the prediction for US$857.4 million.
LinkedIn has seen average annual sales growth of about 56 percent since its 2011 initial public offering.
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