Slowdown in social networking is a red flag for these 2 giants
By Chris Lau for Kapitall
Weak guidance from LinkedIn ( LNKD ) has investors worried. The employment services networking giant gave guidance to the street that was below consensus, amplifying declines in its stock price. With LinkedIn down 42.6 percent from highs and Twitter ( TWTR ) down by similar levels (-47.8 percent), investors need to decide if these companies are just consolidating, or if impressive growth rates are a thing of the past.
Lower guidance
LinkedIn forecast revenue in the current quarter (Q2) will be between $500 and $505 million. For 2014, revenue will be in the range of $2.06 - $2.08 billion, which falls below the $2.11 billion consensus. The company touted page view counts in the billions, but internet traffic does not equate to revenue or profits. The metric merely represents user engagement and activity levels. The company is having trouble adding customers for Talent Solutions. In its Q1, LinkedIn added 1,400 customers and grew revenue in the segment by 50% to $276 million. Shares are simply too lofty no matter what metric is used. Enterprise-value-to-sales (EV/sales), for example, is eight-to-one.
Quality will matter
LinkedIn is not alone in facing slower revenue growth. Twitter is also facing lower user engagement. The company boasted MAUs (monthly average users) was 255 million, but this only grew by 14 million. This is an improvement from the 9 million net additions in Q4, but timeline views are not growing all that quickly. Twitter said views grew to 157 billion, up 15% from last year.
The source for Twitter's traffic growth is TV. It relies on such events as the Oscars and the Olympics to get a boost in traffic.
LinkedIn's challenges depend on user quality. Many user profiles may be incomplete, outdated, or unreliable. This will create frustration for companies looking through potential candidates.
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Slowdown in social networking is a red flag for these 2 giants