Cowen Upgrades LinkedIn (LNKD) to Outperform; Sales Navigator is Positive, L-T Catalyst

Cowen upgraded LinkedIn (NYSE: LNKD) from Market Perform to Outperform and moved its price target from $195 to $253.

Analyst John Blackledge issued the following commentary:

Sales Navigator - The Next Catalyst for the Stock

In August, LinkedIn introduced Sales Navigator for Enterprises with new functionality (vs. the prior version) and a talented salesforce to address the opportunity. The new & updated product features include: i) CRM integration (w/ Salesforce.com, etc), ii) Mobile App for iOS, iii) Teamlink (increases 1st/2nd degree connections) and iv) Lead Recommendation engine, among others. LinkedIn initially has 150 salespeople selling Sales Navigator and ~50 current sales job openings for the product. The product enhancements and sales effort should enable strong adoption, in our view.

Data suggests salespeople with a high social selling index score outperform peers and outpace quota targets. Social selling eliminates "cold calling," which is a positive as buyers are 5x more likely to engage via a social intro vs. a cold call. Also 75% of all B2B buyers and 84% of senior execs report using social media to inform buying decisions, per IDC. Additionally, professional social networks (LinkedIn) are the #1 resource used in the final stages of the purchase decision, per IDC.

TAM Analysis - We see $1.6BN (midpoint) Revenue Oppty by '19

LinkedIn is devoting significant resources to Sales Navigator given the large addressable market. We estimate 60MM salespeople globally (x-Retail and China), split ~6MM US and 54MM Int'ly. We estimate penetration of 0.5MM-2.4MM sales people by 2019, or 1%-4.4% global penetration, which at the midpoint and assuming ~$95 ASP/month, and implies a $1.6BN revenue opportunity by '19.

Price Target to $253 - Raising Long-Term Estimates (14% > Street on '16E EPS)

We increased our long-term estimates to account for Sales Navigator. We forecast Sales Navigator revenue of $273MM in '14 rising to $1.9BN in '19 (above our midpoint TAM assumption) driven by sub count rising from 344K to 1.9MM (59% CAGR and ~3% global salesforce penetration) and ASP/month of $85-$95. As a proxy, we estimate Salesforce.com has ~7MM seats currently and grew seats at a 52% CAGR during it first five years.

We raise our Price Target to $253 (from $195) based on overall estimate increase. Wenow forecast revenue rising from $2.2BN in '14 to $8.3BN in '19 (30% CAGR vs. 27%prior) and EPS (Non-GAAP) of $2.01 in '14 to ~$14 in '19 (vs. $11 prior).

For an analyst ratings summary and ratings history on LinkedIn click here. For more ratings news on LinkedIn click here.

LinkedIn closed at $206.04 yesterday.

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