Big, bullish note from Morgan Stanley analyst Scott Devitt on LinkedIn this morning.He says the company is “firing on all cylinders” and he’s got the stock rated “overweight.”
Here what he wrote in his report:
Shares rallied despite lock-up release: LinkedIn’s shares rose nearly +18% in the day following CQ4:11 results, and have remained relatively stable through the follow-on offering’s lock-up release on 2/27, when ~55% of LinkedIn shares became freely tradable to the public. While this lock-up release featured fewer sellers (management / VC firms) than the November event, LinkedIn’s recent fundamental outperformance likely contributed to this event being a non-factor for the stock.
Positive on growth despite conservative guidance: LinkedIn cautioned investors of potential seasonal weakness in Hiring Solutions in CQ1:12E, but guidance still represents +84% Y/Y growth at the midpoint of the range. LinkedIn also noted that Marketing Solutions may be seasonally weak in CQ3:12E due to slow web traffic.
Margin expectations growing increasingly bright: LinkedIn delivered a significant EBITDA beat in CQ4:11 despite sales & marketing costs rising +152% Y/Y. LinkedIn’s back-loaded C2012E adj. EBITDA margin guidance implies that the company may exit C2012E with margins approaching the mid-20% range, indicating that significant expansion may be on the horizon.
Valuation: We maintain our OW rating on LinkedIn shares as we view a favourable risk / reward proposition despite elevated price levels. LinkedIn currently trades at 19x C2014E EBITDA, and we believe a premium valuation is warranted given persistent triple-digit revenue growth and a steadily improving margin outlook. Our $105 DCF-based price target offers investors 16% upside potential.
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