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LinkedIn’s 2016 Guidance Misses Analysts’ Expectations

LinkedIn Posts a Strong 4Q15 but Falls on Weak 2016 Guidance

(Continued from Prior Part)

LinkedIn expects revenues of $820 million in 1Q16

LinkedIn (LNKD) has forecast revenues of $820 million and earnings per share (or EPS) of $0.55 for 1Q16. Analysts, however, expect revenues of $867 million and EPS of $0.74 for 1Q16.

For 2016, the online networking company expects revenues between $3.6 billion and $3.7 billion, with EPS between $3.05 and $3.20. This is significantly below analysts’ revenue estimates of $3.9 billion and EPS estimates of $3.67.

Costs rise as LinkedIn focuses on product development

In 4Q15, LinkedIn spent on product development to overhaul its mobile app. The company also expanded it sales force. In 4Q15, product development expenses grew to $217.3 million from $150.3 million in 4Q14.

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LinkedIn stated that it would discontinue Lead Accelerator, an advertising tool it introduced in 2015. According to the company, it required “more resources than expected” to grow.

LinkedIn’s weak forecast reflects the economic uncertainty currently being experienced in global markets due to the slowdown in China (FXI) and the European (VGK) economic crisis.

Analysts believe that in 2016, LinkedIn should focus on user engagement and retention. Each user that signs up with the company should begin using its service. LinkedIn, like its peer companies in the social media segment Facebook (FB) and Twitter (TWTR), must continue to attract users to be sustainable in the long run.

In LinkedIn’s annual report, it states, “A substantial majority of our traffic is generated by a minority of our members. Our business may be adversely affected if we are unable to attract and retain additional members who actively use our services.”

Even though there are no signs of LinkedIn’s user base slowing, it’s an important risk factor for the company.

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