LinkedIn shares rose $5.94 or 6.5% yesterday to $97.78 after a Goldman Sachs analyst downgraded the stock from buy to neutral. LinkedIn had just dipped below $90 on March 20th on a down day for the market, and many pundits expected a sharp buyback after the dip. Investors hadn’t expected Analyst Heath Terry to explain that LinkedIn had a “high perceived value” with recruiters and that its Corporate Hiring Solution product had large growth potential.
Heath explained that LinkedIn has an advantage due to its position with businesses, but also because of its use of subscriptions rather than advertising to drive revenue. He went on to explain that they see LinkedIn outperforming the sector for the “next few years”. He concluded by estimating a 2012 earnings per share of 18 cents per share, then increasing to 50 cents for 2013 and $1.03 for 2014. These are big numbers compared to current expectations.
“We believe growth in the core hiring solutions and marketing services businesses is likely to be higher than market expectations. Our checks show increasing traction for LinkedIn’s hiring solutions and improving user engagement that, along with emerging products, suggest a steeper slope to the company’s long- term growth. On a more macro level, we believe LinkedIn is one of the companies best positioned to benefit from growth in mobile usage given its reliance on subscriptions over advertising. We believe this will be a key factor in driving outperformance in the sector over the next few years.”
LinkedIn has tremendous potential to corner the hiring market, as their corporate solutions utilize social and personal data to personalize recommendations better than any tool I’ve used in the past. Will you pick up some LinkedIn stock and ride it to Terry’s price target of $135?