LinkedIn Corp (LNKD): The Bottom Line

Competition

Social networking giant Facebook Inc (NASDAQ:FB) saw its stock rise last week on stronger than expected revenue, with first-quarter sales up 38% to $1.46 billion beating analyst estimates. Investors were especially pleased with the company’s mobile performance, with mobile now accounting for some 30% of advertising revenue versus 23% in the previous period. The number of mobile users grew 54% to 751 million, further bolstering investor confidence.

A prime online employment competitor, Monster Worldwide, Inc. (NYSE:MWW), has been struggling to get earnings back to pre-crisis levels of around $1.43 in 2007. Annual EPS has more or less flat-lined since 2011, staying around $0.37 per share. For Q1 2013, the company reported a drop in revenue of some $22 million, citing a tough global economy. As a result, the company has announced a strategic review of its business, and is looking for ways to streamline its organization.

Valuations and metrics

I am personally wary of the valuations in the social networking space, although many investors seem undeterred by these formidable numbers. LinkedIn Corp (NYSE:LNKD) currently trades at nearly 1,250 times trailing earnings, and Facebook Inc (NASDAQ:FB) is also up there with about 580 times trailing earnings. LinkedIn Corp (NYSE:LNKD) has an operating margin of 6%, which is under the industry average, and a return on equity of less than 3%. On the other hand, they have a fair amount of cash with zero debt.

The bottom line

While LinkedIn Corp (NYSE:LNKD) delivered strong earnings and revenue growth, the stock got slammed on a weak outlook. Despite this drop, the stock is still trading a huge metric, which deters me personally from getting in. However, there are many investors who are bullish on the stock and the industry, and the drop in stock price may be an interesting opportunity for those are looking to go long on this professional networking giant.

The article This Company’s Disappointing Outlook Is an Opportunity originally appeared on Fool.com.

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