Cowen Affirms LinkedIn (LNKD) at 'Outperform' Following Q2 Results; Display Ad Decline Hampers Outlook

Cowen and Company affirms its Outperform rating and $260 price target on LinkedIn (NYSE: LNKD) following Q2 results issued after markets closed Thursday.

Analyst John Blackledge noted that LNKD topped Q2 revenue and EBITDA expectations, but guided the core business down by about $25 million on larger display ad revenue declines.

On core metrics, Blackledge noted: Talent Solutions (Hiring) customers reached 37.4K, up 33 percent y/y (+8 percent q/q vs. +5 percent in 1Q), ~1 percent above our 37K forecast, as churn declined q/q and y/y. The salesforce reorg that impacted 1Q15 results is past, we estimate Hiring revenue could accelerate slightly in 4Q15.

Sales Navigator is tracking well accounting for ~34 percent of Premium Subs revenues (or $43MM, up 75 percent y/y, in line with our forecast, but a deceleration from +95 percent y/y in 1Q15). We estimate some SN revenue acceleration in 2H15 given building sub count and renewals at higher ARPU. Mgmt. commentary was encouraging, including seeing meaningful improvements in SN customer satisfaction and higher than expected renewal levels at higher prices (field sales getting renewals at $1200/yr).

In Marketing Solutions, Premium Display advertising (17 percent of segment revenue) declined 34 percent y/y, faster than expected (est. -23 percent), as LNKD is pivoting salesforce focus to Sponsored Updates, +90 percent y/y and now comprising 45 percent of segment revenue. Prem. Display revenue declines will worsen in 2H15 to 40 percent+ declines.

On guidance: The FY15 guide was complicated, given changes in the impact of Lynda.com, after puts and takes, the core biz revenue and EBITDA is expected to be ~$25MM lower than expected (pre-print), after factoring i) qtr beat, ii) Lynda incremental changes and iii) new guidance (revenue +$40MM and EBITDA +$35MM). The sole driver is the drop off in premium Display advertising. After accounting for 2Q15 results and the guide, we settled out a bit above FY15 guide (see table in note), long-term forecast largely unchanged (despite many puts and takes).

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