Options Trade – LinkedIn Corporation (LNKD) Calls 
Wednesday, April 17, 2013

LinkedIn – A Winning Performer!

**OPTION TRADE: Buy the LNKD Aug 2013 200.000 call (LNKD130817C00200000) at or under $9.80, good for the day. Place a protective stop limit at $5.20 and a pre-determined sell at $15.50.

**ALTERNATIVE OPTION TRADE: Buy the LNKD Aug 2013 210.000 call (LNKD130817C00210000) at or under $6.40, good for the day. Place a protective stop limit at $3.20 and a pre-determined sell at $10.50.

by Ian Harvey

April 17, 2013

Introduction

With earnings season upon us it is important to be looking for companies with earnings estimates on the rise instead of falling. Typically as earnings approach analysts cut profit forecasts, so we need to watch for companies whose earnings are on the way up.

One such company that fills this description is LinkedIn Corporation (NASDAQ: LNKD) whose shares jumped 21% on Feb. 8 after the company reported a 192% rise in earnings. For this quarter analysts are expecting EPS to rise 107%.

Also of importance, is for a company to be able to come through major downturns in the market, as occurred on Monday. Big-cap stocks, even those with the best ratings, couldn't escape the selling that permeated the broad market. In looking through the list of Big Cap 20 shows a lot of stocks sitting on or near their 10-week moving averages.

Losses Monday on the Big Cap 20 ranged from 1% (Supermarket chain Kroger (KR) and drugmaker Valeant Pharmaceuticals (VRX) to 5% (business-and-career social network LinkedIn (LNKD). Not a single one could break above Friday's close.

LinkedIn is sitting on its 10-week moving average after backtracking from a new high scored just in the prior session. Even after Monday's loss, the stock ended the day 49% above its 117.42 cup-with-handle buy point.

Optimal buy point of a stock as it emerges from a sound and proper basing area or chart pattern (the most common of which include the 'cup with handle,' 'flat base' and 'double bottom') and breaks out into a new high in price. This is the point of least resistance and has shown, through William J. O'Neil's research, to have the greatest chance of moving substantially higher based on its current and historical price and volume activity.

About LinkedIn

LinkedIn Corporation (LinkedIn) is a professional network on the Internet with more than 90 million members in over 200 countries and territories. Through the Company’s platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities.

Its platform provides members with solutions, including applications and tools, to search, connect and communicate with business contacts, learn about career opportunities, join industry groups, research organizations and share information. Its members create profiles that serve as their professional profiles and are accessible by any other member, as well as anyone with an Internet connection.

Key Statistics for LNKD

Current P/E Ratio (ttm) 960.3684
Estimated P/E(12/2013) 134.7637
Relative P/E vs. SPX 62.0790
Earnings Per Share (USD) (ttm) 0.1900
Est. EPS (USD) (12/2013) 1.3540
Est. PEG Ratio 2.3973
Market Cap (M USD) 19,606.14
Shares Outstanding (M) 89.53
30 Day Average Volume 1,899,167
Price/Book (mrq) 22.0307
Price/Sale (ttm) 19.7943
Dividend Indicated Gross Yield -%
Cash Dividend -
Last Dividend
5 Year Dividend Growth -
Next Earnings Announcement 05/02/2013

Breakout Patterns

Taking away the distraction of Monday’s dismal drop, the charts are giving a green light to go long LinkedIn (NASDAQ:LNKD). LNKD’s pattern tells us that the price broke upward out of a trading range suggesting we’re entering a new uptrend. The Upside Breakout pattern represents a trading range in which prices move sideways between two parallel horizontal lines. It’s often a pause or congestion area within an existing trend though sometimes the breakout results in a reversal to the prior trend. Either way, an upside breakout through the upper resistance line signals an end to the consolidation period and the start of an uptrend.

Earnings

Linkedin last issued its quarterly earnings data on Thursday, February 7th. The company reported $0.35 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.19 by $0.16. The company had revenue of $303.60 million for the quarter, compared to the consensus estimate of $279.50 million. During the same quarter last year, the company posted $0.12 earnings per share. Linkedin’s revenue was up 81.0% compared to the same quarter last year. On average, analysts predict that Linkedin will post $1.35 earnings per share for the current fiscal year.

February’s Earnings Blowout

A big catalyst for the surge in 2013 was a blowout earnings report in February, including an 81% jump in revenue year-over-year and profits of 35 cents per share on estimates of just 19 cents. LNKD stock could pop again on May 1 when it reports Q1 numbers. There have already been a few upwards revisions to estimates, and if that trend continues through April, it could portend another blowout report. Forecasts are for another 50% increase in revenue this year.

Companies as Customers

LinkedIn clearly has an appeal for individuals who are networking with peers or job hunting. But the annual report unveiled in February showed that Corporate Solutions customers — enterprises or professional organizations that use LinkedIn for recruiting or marketing services — jumped 78%. LinkedIn is committed to diversifying its revenue stream with premium subscriptions for individuals, paid job ad postings and corporate accounts, which will ultimately provide stability as well as growth.

Overvalued?

The company has a P/E ratio of more than 1,000, which is way higher than even the closest peer in the industry, while the industry average is 28.2. Its P/S ratio is also lower than the industry average. These two ratios suggest that the company is currently overvalued in comparison to its fundamentals and a correction is probable in the short to middle term. However, the EPS growth forecast for the next five years at 61.33% signals that the correction might not be too much. This is also because of the company’s strong balance sheet, zero leverage and robust operating cash flow.

The Drive Behind Further Growth

The rise in the stock price has come off of exceptional revenue and profit margins. But this growth is not sustainable for a very long time, unless the company keeps innovating like it did when it released a new look for its homepage. This innovation led to a 70% increase in page views since its launch, as it enabled members to discover, share and discuss the professional information that is most relevant to them. In its Q4 conference call, the management discussed all the new features introduced during the last six months. These included a new homepage, integration of LinkedIn Corp (NYSE:LNKD) Today into the homepage, a new version of LinkedIn profile etc. This innovations has been playing a very significant part in revenue generation for the company and therefore have to be continued in order to sustain the advantage for a longer period of time.

Also, acquisitions of rapidly growing companies have to be made to grow its revenues inorganically as well. One of those acquisitions was Slideshare, which experienced huge traffic, reaching over 47 million unique users in Q4, representing a 68% increase over the same quarter last year. Yesterday, the company acquired Pulse, a leading news reader and mobile content distribution platform, at approximately $90 million. The application currently has about 30 million users in more than 190 countries. This will further help the company in its vision to deliver value to its members and become the definitive professional publishing platform.

International growth is also essential for the company. It reported a 38% share of international revenues in total revenues as compared to 33% last year. It is rapidly expanding around the world and is now available physically as well in many countries.

Analysts Outlook

Equities research analysts at National Alliance Securities started coverage on shares of Linkedin (NASDAQ: LNKD) in a research note issued to investors on Tuesday, Stock Ratings Network.com reports. The firm set a “buy” rating and a $214.00 price target on the stock. The analysts noted that the move was a valuation call.

A number of other firms have also recently commented on LNKD. Analysts at TheStreet reiterated a “sell” rating on shares of Linkedin in a research note to investors on Friday. Separately, analysts at Morgan Stanley raised their price target on shares of Linkedin from $180.00 to $210.00 in a research note to investors on Thursday, April 4th. They now have an “overweight” rating on the stock.

One analyst has rated the stock with a sell rating, twelve have given a hold rating and fifteen have given a buy rating to the company’s stock. The company presently has a consensus rating of “Buy” and a consensus price target of $169.40.

Analyst Firms Making Recommendations

AVONDALE PARTNE BMO CAPITAL MKT
CANACCORD GENUI CANTOR FITZGERA
CITIGROUP CREDIT AGRICOLE
GOLDMAN SACHS JEFFERIES & CO.
JP MORGAN SECUR MACQUARIE CAPIT
NORTHLAND SECUR RAYMOND JAMES
STERN,AGEE&LEAC WEDBUSH SECURIT
WILLIAM BLAIR

Conclusion

The reason behind this stock price movement has been the company’s phenomenal financial performance in the last two quarters, which surpassed every analysts forecast by a huge margin. Before the release of the last quarterly results, analysts expected EPS of $0.19 per share and revenues of $279.93 million. But the company reported EPS of $0.35 per share and revenues of $303.6 million, surpassing all these estimates.

The company quadrupled its revenue in two years, as the number was $243 million in 2010 and $972 million in 2011. Analysts have always underestimated the revenue generation capacity of the company, and therefore better financial performance as compared to the expectations leads to the stock soaring high.

The company’s efforts to continuously innovate and release new products and features for its users, grow inorganically by acquiring rapidly growing young companies, and expand internationally will drive the company’s growth in the next few quarters.

Therefore, based on the facts above the following options trade is recommended…..


**OPTION TRADE: Buy the LNKD Aug 2013 200.000 call (LNKD130817C00200000) at or under $9.80, good for the day. Place a protective stop limit at $5.20 and a pre-determined sell at $15.50.

**ALTERNATIVE OPTION TRADE: Buy the LNKD Aug 2013 210.000 call (LNKD130817C00210000) at or under $6.40, good for the day. Place a protective stop limit at $3.20 and a pre-determined sell at $10.50.



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