LinkedIn Corp To Double Its 380 Million User Base In The Long Term

Wedbush believes LinkedIn offers growth potential, but remains concerned about user engagement

Wedbush has assumed coverage on LinkedIn Corp (NYSE:LNKD) with a Neutral rating and price target of $200. The sell side firm said that LinkedIn has significant growth prospects; however it remains concerned with the fact that the company is unlikely to increase user engagement if it does not have attractive content to offer to its customers.

The research agency said that LinkedIn is one of the most popular platforms for people searching for jobs and recruiters. The professional networking service aims to benefit from its strong user base by providing them different solutions such as marketing, education and recruitment.

The firm is of the view that LinkedIn will likely remain the premier job website in the future, and also expressed optimism that the company will be able to capitalize on its job searching users by creating applications which appeal to its members. The sell agency sees significant opportunity potential for geographic expansion, and forecasts that the company’s registered user base of 380 million will double in the long term.

But it also said that the company’s progress in marketing and educational solutions will be dependent on user engagement. The firm remains doubtful of LinkedIn’s ability to increase user engagement through attractive content.

Wedbush considers LinkedIn’s shares to be fairly valued. Its shares are trading at a premium compared to its Internet peers, which shows that the company has a huge growth opportunity. Although the agency expects the user base of the social media platform to rise speedily, its EBITDA contribution margin of 33-35% is much below than its peers.

The professional networking site is also focusing on assigning a major part of its revenue growth to marketing and product development, and does not see any significant upsides in the contribution for at least two years. The company is likely to face difficulty in growing its contribution margins, if the marketing and product development spending continue to stand at 50% of the revenue.

LinkedIn’s main business is Talent Solutions, which contributes to over 50% of its revenues. The firm believes that unless the company is able to grow the Marketing Solutions and Premium Subscription to an extent where their contribution in revenue becomes significant, investors should stay away from purchasing the stock.

According to Bloomberg, 34 analysts have rated the company as a Buy, while nine have assigned a Hold and only two are recommending a Sell. The 12 month consensus price target is $253.32 which represents an upside of 37.5% when compared with the price target of $184.23 as of 10:37 PM EDT.

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