LinkedIn Shares Dive on Weak 2016 Guidance

The social network sheds $11 billion in market value as the stock suffers its sharpest drop since LinkedIn's 2011 initial public offering.
Katie Kuehner-HebertFebruary 5, 2016

While LinkedIn surpassed analysts’ expectations for 2015, the professional social networking company’s weak forecast for this year sent its stock tumbling, wiping out $11 billion in market value.

LinkedIn on Thursday forecast full-year revenue of $3.60-$3.65 billion, missing the average analyst estimate of $3.91 billion, according to Thomson Reuters I/B/E/S.

LinkedIn’s shares fell 45% to a three-year low of $105 in trading Friday, the sharpest decline since the company’s high-profile public listing in 2011, according to Reuters.

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“With a lower growth profile, we believe that LinkedIn should not enjoy the premium multiple it has grown accustomed to,” Mizuho Securities analysts wrote in a note.

As CNN Money reports, investors in LinkedIn “had been pumping up the stock — way up — on the belief that LinkedIn would continue to grow strongly for the foreseeable future.” LinkedIn’s shares had been trading at 52 times the company’s expected earnings for the year. The average ratio for the S&P 500 is 20.

“By trading at such a high valuation, any sign that LinkedIn wasn’t performing as well as investors believed meant that the air was going to get let out of the balloon,” CNN Money said. “It was only a matter of time before LinkedIn gave investors the news they needed to start poking holes.”

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The company also reported first-quarter revenue guidance of $820 million, a huge miss from the $867 million investors projected.

“LinkedIn has been spending heavily on expansion by buying companies, hiring sales personnel and growing outside the United States, but is now facing pressure in Europe, the Middle East, Africa and Asia-Pacific due to macro-economic issues,” Reuters wrote.

For 2015, LinkedIn surpassed investor expectations of revenue and profit for 2015, posting adjusted earnings of 94 cents per share, versus the analyst consensus of 78 cents.

“LinkedIn actually had a pretty good quarter in the last three months of 2015,” CNN Money said, noting that it is getting “great traction” out of its new app, membership grew 19% to 414 million, visits were up 7%, and clicks on members’ LinkedIn pages increased 26%.

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