LinkedIn Corp (NYSE:LNKD) shares have plunged by 8.92% in morning trading, trimming the gains and then some that the stock had made in the after-hours trading yesterday, following better-than-expected results for its second quarter of 2015. After the markets closed yesterday, LinkedIn reported earnings per share of $0.55 on sales of $712 million for the second quarter, widely beating consensus expectations of $0.33 per share on sales of $679.80 million. As a result, the stock traded up as much as 13% after-hours, before trending down. In a report from Benzinga, several industry observers note that LinkedIn Corp (NYSE:LNKD) spiked after-hours maybe due to the low bar that had been set for the firm after a miss in the first quarter. Quantum Trading Strategies CIO Sean Udall said that the EPS beat was a “whopper”, but cautioned that the guidance from the social network “looks so-so”. For the third quarter, LinkedIn sees reporting revenues between $745 million and $750 million and adjusted EPS of about $0.43. For the full year, the firm guides with revenue at about $2.94 billion and adjusted EPS of about $2.19. Udall adds that it’s a bit “funny” that some names can be beat up while others like LinkedIn are rewarded. “It’s a momentum name, kind of a cult favorite,” he tells Benzinga. Global Equities Research analyst Trip Chowdhry told the publication that LinkedIn’s quarter was “unexpectedly strong”, but that he still considers the stock as “volatile”.
Hedge funds appear to be backing away from LinkedIn Corp (NYSE:LNKD) precisely because of this volatility. In the first quarter, despite the stock climbing by 8.77%, the total investment of hedge funds we follow which had long positions in LinkedIn on March 31 had declined by 19.34% quarter-over-quarter to $2.49 billion. Nonetheless, it should be noted that at the end of the first quarter, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 12 from the previous quarter.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 123% and beating the market by 66.5 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
Insider purchases or sales of shares is another area Insider Monkey looks at to give us an idea about the sentiment of insiders in their companies. While there have been no insiders buying shares of the social networking giant so far this year, there has been sellers. CEO Jeff Weiner made the most recent divestiture of his personal holdings in his company, of 14,120 shares on July 20.
Considering all of this, let’s go over the latest key hedge fund activity surrounding LinkedIn Corp.
What does the smart money think about LinkedIn Corp (NYSE:LNKD)?
Coatue Management, led by Philippe Laffont, holds the biggest position in LinkedIn Corp (NYSE:LNKD), with a $555.4 million position made up of 2.22 million shares. On Coatue Management’s heels is D.E. Shaw & Co., L.P., managed by David E. Shaw, holding a $307 million position in 1.23 million shares; the fund has 0.5% of its 13F portfolio invested in the stock. Other bullish investors are Alex Snow of Lansdowne Partners, John Griffin of Blue Ridge Capital, and Christopher Lord of Criterion Capital.
Conatus Capital Management, helmed by David Stemerman, initiated the largest position in LinkedIn Corp (NYSE:LNKD), with $29.3 million invested in the company at the end of the quarter after the firm bought 117,143 shares. Peter Muller’s PDT Partners also made a $25.8 million investment in the stock during the quarter, acquiring 103,184 shares. On the other side of the fence, David Goel and Paul Ferri‘s Matrix Capital Management dropped the largest stake among the hedge funds watched by Insider Monkey, selling a $212.48 million position made up of 925,000 shares. Eric Bannasch’s fund, Cadian Capital, also said goodbye to its 644,400 shares worth about $148.03 million.
As we can see, the largest new position in the first quarter was relatively small compared to the top two largest positions which were sold off, which illustrates why the company saw a substantial outflow of investment in the first quarter. As hedge funds are bearish on the firm and with analysts saying that they see the stock continuing to be volatile, we wouldn’t recommend a long position in LinkedIn Corp (NYSE:LNKD).
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