LinkedIn (LNKD) announced improved first-quarter results and the acquisition of presentation-sharing firm SlideShare after the close Thursday. Though we have no issues with the performance in the quarter or the company’s acquisitive activity, we are maintaining our view that the firm’s shares are significantly overvalued.
The world’s largest professional network’s revenue more than doubled in the first quarter, as sales in all three of its major segments — Hiring Solutions, Marketing Solutions, and Premium Subscriptions — advanced considerably from the year-ago period. The company’s quarterly net income grew to $5 million (up from $2.1 million in last year’s quarter) thanks to the solid top-line expansion and a 4 percentage-point increase in its EBITDA margin. We would expect continued profitability improvement in coming periods as the company successfully scales fixed costs with higher revenue. Non-GAAP net income nearly tripled, to $16.9 million, but this measure continues to be dwarfed by the company’s astronomical $11.2 billion market capitalization, which we view to be largely unjustified, even after consideration its tremendous growth and profitability potential in our valuation model.
Looking forward, LinkedIn (LNKD) raised its revenue guidance for 2012 to the range of $880 to $900 million (was $840 to $860 million) and its EBITDA guidance range to $170 to $175 million (was $155 to $165 million). Though we view the revisions in a positive light as they show the company continues to build momentum, the upwardly-revised outlook for 2012 is — to a large extent — irrelevant. LinkedIn’s current valuation will only be justified by how the firm looks 5 to 10 years in the future, not in the next quarter or two.
At this point, we strongly believe the company will be unable to deliver on the market’s exceedingly optimistic growth projections. We continue to view LinkedIn as significantly overvalued and may increase our put-option exposure in the portfolio of our Best Ideas Newsletter if the shares reach technical extremes.