LinkedIn Corp: Barclays Cuts Rating on Muted Revenue Growth
LinkedIn Corp. (NYSE:LNKD) stock plunged as much as 2.71% today, after Barclays analysts downgraded it from Overweight to Equal Weight, on the back of a slowdown in revenue growth. The professional networking company has failed to provide any positive news to shareholders since the start of fiscal year 2016 (FY16), as its share price took a turn for the worst, following the fourth quarter of fiscal 2015 (4QFY15) earnings call in February.
The company managed to post better-than-expected results in the last quarter, which were ahead of the consensus estimates. However, the stock tanked 29% during the after-market hours, based on the bleak current-quarter outlook. Several Wall Street analysts slashed their ratings on LNKD stock, primarily due to the concerns around total addressable market (TAM) and revenue deceleration. On the flip side, CLSA Research and UBS defended the company, and underlined the post-earnings sell-off as an “overreaction” on the part of the investors.
The analysts also cut the target price on LNKD shares from $205 to $130. The firm highlighted the fact that LinkedIn’s rich valuation, driven by high revenue growth, was the “biggest sticking point” for the company, which led the investors to pay a premium multiple to own the stock.
Despite lowering the rating on the stock, the firm expects the company to perform well in the long term. However, the slowdown in enterprise customers, along with the revenue deceleration, may prove to be a hurdle in the near term. Last week, Morgan Stanley also revised down its rating on the shares from Overweight to Equal Weight, based on the continued weakness in its Talent Solutions segment.