Option Trade 
LinkedIn Corp (NYSE:LNKD) Calls 
Wednesday, April 29, 2015

**OPTION TRADE: Buy the LNKD May 2015 270.000 call (LNKD150515C00270000) at or under $6.50. Place a protective stop loss at $2.60, and a pre-determined sell at $11.50.

by Ian Harvey

April 29, 2015

Introduction

LinkedIn Corp (NYSE: LNKD), which operates a social network for professionals, is expected to report first-quarter results on Thursday that beats average analysts' estimate. Analysts expect LinkedIn's hiring business, which has been growing by nearly 50 percent in the last three quarters, to remain the primary engine of growth by acquisition of new customers.

The professional networking site surged to an all-time high in January after the company’s profit and sales topped analysts’ estimates for the 15th consecutive quarter.

LinkedIn is forecast to report a first-quarter loss of $26.14 million, or earnings per share loss 20 cents, on revenue of $636.04 million, compared with a loss of $13.45 million, or earnings per share loss of 11 cents, on sales of $473.19 million a year ago.

And it all seems to be working for LinkedIn…..

• Of the three operating divisions at LinkedIn, its talent solutions -- the unit focused on jobs -- is far and away its primary driver of revenue. Last quarter, the talent unit enjoyed a 41% year-over-year jump in revenue, posting an impressive $369 million in sales -- that represents 57% of the top line. However, talent revenues made up 61% of sales in the previous quarter, so LinkedIn is doing a better job of "spreading the wealth."

• The continued diversification of revenue across the multiple divisions is working. It is rarely a good idea to be overly reliant on any one aspect of a business, which is one reason Weiner and his team are focused on growing the other divisions.

• On a percentage basis, the marketing solutions unit saw the largest revenue increase of the fourth quarter, growing an impressive 56% year-over-year to $153 million. Marketing sales now make up 24% of the top line, up from 19% the previous quarter.

• The final piece to the LinkedIn revenue puzzle is its premium subscription unit, which made up a "mere" 19% of revenues. However, the unit grew 38% year-over-year, contributing $121 million in sales.

• As LinkedIn continues to post strong sales each quarter, its impressive member growth sometimes flies under the radar. But as last quarter demonstrated, despite being more of a niche player in the social media universe, LinkedIn grew to about 350 million active members in the fourth quarter, up 9% from 332 million the prior quarter.

Technical Details

LinkedIn Corp has a 1-year low of $136.02 and a 1-year high of $276.18. The stock’s 50-day moving average is $258.00 and its 200-day moving average is $236.00.

The company’s market cap is $32.57 billion.

Earnings

LinkedIn Corp last released its earnings data on Thursday, February 5th. The company reported $0.61 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.53 by $0.08. The company had revenue of $643.43 million for the quarter, compared to the consensus estimate of $616.70 million.

During the same quarter last year, the company posted $0.39 earnings per share. LinkedIn Corp’s revenue was up 43.9% compared to the same quarter last year. Analysts expect that LinkedIn Corp will post $3.03 EPS for the current fiscal year.

Upcoming Report

The company is anticipated to generate $637.8 million in revenue, which represents an estimated 34.8% year-over-year (YoY) growth, according to analysts polled on Bloomberg. This compares with 43.9% and 45.7% YoY revenue expansion during the preceding (4QFY14) and last year’s March (1QFY14) quarters, respectively.

The consensus estimate for earnings per share (EPS) stands at 57 cents for the quarter; which points toward an expected 49.5% YoY earnings growth. The company registered 56.4% YoY EPS expansion during the last quarter, while experiencing a 15.6% YoY decline in the same quarter past year.

Unlike Facebook and Twitter, LinkedIn doesn't report MAU growth. Instead, it reports total member numbers and unique visiting members. In the fourth quarter of 2014, LinkedIn's total members rose 25% year-over-year to 347 million, down from 37% growth a year earlier. Unique visiting members only rose 22% to 93 million, compared to 31% growth a year earlier.

In other words, only 27% of LinkedIn's members visit the site on a regular basis. The reason is simple: whereas Facebook and Twitter are casual social networks, LinkedIn focuses on job searches and building professional connections. Therefore, users mainly access the site when they are looking to change jobs.

LinkedIn generates revenue in three ways: talent solutions (connecting recruiters to candidates), marketing solutions (display ads), and premium subscriptions (which unlock additional features). All three businesses posted robust growth last quarter.

As a result, LinkedIn's revenue soared 45% annually to $2.2 billion in 2014, but rising expenses caused it to post a net loss of $16 million, down from $27 million in net profit a year earlier.

LinkedIn is trying to generate more return visits to its site by unbundling its apps and enhancing its site with more social features.

Fund Support for LinkedIn

Though LinkedIn is by no means the largest position for professional asset management firm Churchill Management, the stock makes up 1.46% of its portfolio as of the most recent 13F filing. Churchill definitely liked what it saw in the professional networking giant last quarter when it acquired nearly 167,000 shares, the large majority of its current 171,000 share position. That brings its total stake in the company to approximately $44.4 million as of this writing.

This optimism is good news for investors, as money managers like Churchill have gotten onboard the LinkedIn train, because they see a number of positives leading up to its first quarter earnings announcement on April 30th.

Expansion

Recently, LinkedIn entered into an agreement to acquire Lynda.com - an online learning company - for $1.5 billion. The acquisition of Lynda.com will put LinkedIn at the forefront of the online education sector, which was a key missing piece in its portfolio. Furthermore, the acquisition will bring in new talent, technology and products, which will add to the company's growing portfolio. Moreover, it will enable LinkedIn to deliver better services.

LinkedIn's traction in the mobile segment is particularly encouraging primarily due to its application launches for Apple's iPhones and Android-based smartphones. Synergies from acquisitions are also expected to positively impact results over the long run. The acquisitions of Newsle and Bizo will not only enhance user experience but also garner additional dollars through targeted marketing strategies.

LinkedIn's initiatives to increase advertising revenues through product launches and partnership programs are praiseworthy. Advertisers are also taking a note of the company's growing user base.

Analysts Opinions

In a research note issued on Friday, Goldman Sachs expects continued strong growth for LinkedIn Corp led by Marketing and Premium, and predicts the company will report first-quarter fiscal 2015 (1QFY15) earnings ahead of expectations. The sell-side research firm reiterated a Buy rating with a price objective of $280 on the stock. As the news crossed the wires, the stock was trading up 1.84% at $260.95 as of closing bell Friday.

Commenting on the expectations associated with LinkedIn this quarter, Goldman Sachs analyst Heath Terry noted: “We expect LinkedIn to report 1QFY15 ahead of expectations, led by Marketing & Premium. We believe the long-term (LT) trajectory of existing businesses and the opportunity of emerging businesses like Sales Navigator remain among the most compelling in internet (industry).”

Wedbush reissued their neutral rating on shares of LinkedIn Corp in a research report sent to investors on Monday morning.

In the report Wedbush noted, “We remain optimistic on the company’s long-term market opportunity and positioning, however, we are maintaining our NEUTRAL as we await more clarity around the timing of uptake for the newer growth drivers (Sales Navigator, Sponsored Updates, China).”LinkedIn had previously announced its plans to acquire lynda.com, a leading e-learning company that offers educational video courses to help its users acquire new skills. The transaction is scheduled to close in 2Q. “Given lynda.com’s complementary educational content, we’re optimistic about the company being able to drive greater time spent on its properties over time,,” the firm’s analyst wrote.

The company has also been the subject of a number of other research reports:-

• Analysts at RBC Capital reiterated a buy rating on shares of LinkedIn Corp in a research note on Sunday, April 12th.

• Analysts at Brean Capital reiterated a sell rating and set a $208.00 price target on shares of LinkedIn Corp in a research note on Sunday, April 12th.

• Analysts at Axiom Securities reiterated a buy rating and set a $300.00 price target on shares of LinkedIn Corp in a research note on Sunday, April 12th.

• Finally, analysts at Canaccord Genuity raised their price target on shares of LinkedIn Corp from $285.00 to $300.00 and gave the company a buy rating in a research note on Thursday, March 12th.

The Street is firmly bullish on LinkedIn. Out of the 43 analysts who cover the stock, 30 recommend a Buy while 10 indicate a Hold. The 12-month average target price stands at $289.58, reflecting an upside of 11% over the current trading price.

Conclusion

Strong revenue growth -- and the steps taken to further diversify not only revenues but also services, including content creation and international expansion -- is compelling reasons why LinkedIn has earned consensus "strong buy" recommendations from Wall Street analysts. Those factors likely drove Churchill Management to increase its ownership so dramatically the past few months.

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


**OPTION TRADE: Buy the LNKD May 2015 270.000 call (LNKD150515C00270000) at or under $6.50. Place a protective stop loss at $2.60, and a pre-determined sell at $11.50.



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