![]() The market clearly has high expectations for LinkedIn which is a good sign for an upcoming earnings beat, but can be a bad sign for its earnings day price reaction. LinkedIn is up 27.33% over the last six months, which means that it outperformed the market by more than 17%. We've found that the market tends to be a good predictor of future good news, and looking at the company's six-month price performance allows us to see its price trend: ![]() One thing to take into account is that LinkedIn's topline growth has been decelerating recently, with last quarter's 44% YoY growth being the smallest rate in the last 2 years:Īnother factor we like to look at is recent price momentum. This is an outstanding streak, and speaks volumes to the company's ability to continually post top-line growth. LinkedIn beat the revenue consensus by 4% last quarter when it released, marking its 12th consecutive beat. Big EPS growth is a good indication of future beats as analysts are historically too conservative in their short-term forecasts for growth stocks. Year-over-year earnings growth was huge at 140%. This was its second EPS beat in a row, but just its sixth beat in the last ten quarters. ![]() LinkedIn beat the EPS consensus by 300% last quarter when it released $0.12 versus expectations of $0.03. The most important metric in determining whether LinkedIn will beat analyst estimates is the company's current earnings momentum. Analysts may do this to stimulate trading (e.g., Hayes 1998), to obtain access to management (e.g., Lim 2001) or to confirm a prior sentiment on a stock (e.g. Essentially, we exploit an academically proven anomaly that shows that analysts consistently under (or over) estimate EPS results for certain stocks in order to generate good news (an EPS surprise) or bad news (an EPS miss). For readers who aren't familiar with the basis of our earnings predictions, this article explains it best. Many stocks this week have handily beaten EPS estimates yet have fallen off a cliff because of weak guidance, margins, etc. While we've had success doing so in the past, our models are not accurate in forecasting the stock's price reaction afterwards. In this article, we'll analyze whether LinkedIn will beat analyst expectations. A quick look at Twitter ( TWTR) will show you what the market does to companies that are overvalued and fail to impress. Given the current valuation, LinkedIn must continue to beat analyst expectations for it to justify its market cap. LinkedIn (as well as most of the social media stocks) is a "battleground" stock, in that some investors are extremely bullish while others are extremely bearish. This has sent the stock to extremely high valuations (price to sales of 14.5), making each quarterly earnings release absolutely critical for them to beat. For the most part, the market has been very optimistic on the stock bidding the stock up 27.33% over the last six months. LinkedIn ( LNKD) releases earnings tomorrow afternoon, and there is a great deal of uncertainty around its results given its recent acquisition of and the stock's historically volatile results.
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