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M c I n t i r e I n v e s t m e n t I n s t i t u t e 1
MCINTIRE INVESTMENT INSTITUTE AT THE UNIVERSITY OF VIRGINIA
Selena Kowalski and Scott Helgeson| Nov. 7, 2013
LinkedIn Corporation (NYSE: LNKD)-Short
M c I n t i r e I n v e s t m e n t I n s t i t u t e
WHAT IS LINKEDIN?
Provides recruiters with tools to better
manage and discover potential
employees
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A site that allows users to create and build an online professional network while finding career
opportunities and sharing employment information
“A living, breathing resume”
M c I n t i r e I n v e s t m e n t I n s t i t u t e
LINKEDIN’S BUSINESS MODEL
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How does LNKD make money?
53% 27%
20%
Revenue Enhanced Talent Acquisition Offerings
Marketing/Ads
Premium Account Subscriptions
LNKD operates and dominates
in a very specific niche
M c I n t i r e I n v e s t m e n t I n s t i t u t e
STOCK SUMMARY
52wk Range: 94.75 - 257.56 Volume: 2,106,602 P/E (ttm): 994.50 Market Cap: 26.36B EPS (ttm): 0.22 Beta: 1.41
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11/6/13 Price: $220.78
M c I n t i r e I n v e s t m e n t I n s t i t u t e
WHAT DO THESE NUMBERS MEAN?
However, over the past four quarters net income has totaled a little over $40 million and revenue about $1.544 billion
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$220.78
LNKD trades for 20 times its
revenue and 730 times its earnings
To justify this price, LNKD would need to
grow their after-tax profit by 30% compounded
annually over the next 24 years
The stock price reflects an assumption that LinkedIn will monetize its user
base at astounding levels
This means after 24 years, it would have $800 billion in revenue and $30 billion in after-tax profit
M c I n t i r e I n v e s t m e n t I n s t i t u t e
WHY LINKEDIN IS OVERVALUED
• Slowing Growth
• Failure of Investors to Consider Competition
• Financial Statement Discrepancies
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
SLOWING GROWTH
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Decreasing Revenue Growth
Peaked in Q3 2011 at 125% year-to-year, falling to 80% in Q3 2012 and 56% in Q3
2013
Slowing growth in membership Quarter-to-quarter new membership growth fell for the
first time since IPO in Q3 2013
Falling unique visitor numbers
This was the first quarter since the IPO that LNKD’s number of unique visitors fell quarter-
to-quarter
Is LNKD Becoming Saturated?
M c I n t i r e I n v e s t m e n t I n s t i t u t e
COMPETITION
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150 million 500 million 1.1 Billion
Ease of Entry Into the Market
Already-Established Social Media Sites
M c I n t i r e I n v e s t m e n t I n s t i t u t e
FINANCIAL STATEMENT DISCREPANCIES
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Off Balance Sheet Debt
LNKD leases all of its office spaces,
leading to off-sheet debt of ~$500M
Dilution of Shares LNKD offers
numerous outstanding
employee stock options, leading to a liability of ~ 1B
~$1.5B in liabilities = 150% of reported net assets
M c I n t i r e I n v e s t m e n t I n s t i t u t e
LINKEDIN VS. GOOGLE
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By comparison, GOOG had $50B in revenue and $11B after-tax profit 2012
This means after 24 years, it would have $800 billion in revenue and $30 billion in after-tax profit
Vs.
“LinkedIn is very good at what they
do. They know what they want, they get it, and they make
lots of money off of it.”
-Roger Antoniazzo
M c I n t i r e I n v e s t m e n t I n s t i t u t e
CATALYSTS
• On October 30th, stock price fell 10% and never really rebounded
• Twitter IPO/Growth
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4
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• Revenue and membership growth are slowing
M c I n t i r e I n v e s t m e n t I n s t i t u t e
RISKS
• Market fails to adjust its valuation of LNKD 1
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• LNKD miraculously meets expectations
M c I n t i r e I n v e s t m e n t I n s t i t u t e
RECOMMENDATION
• Watch LNKD to see if it falls below $210 without quickly rebounding
• Initiate short position at 3.5% • Target buy-back price: around $180
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
QUESTIONS?
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