Last Friday, just after it's fourth quarter earnings, LinkedIn's stock had its biggest ever one day fall, 44%. In that 24 hours the company lost $11 billion of its value. It was a painful mauling for the company. But, unlike many share price changes of this scale, the cause wasn't obvious. By the CFO's own admission: "I was pretty surprised at the magnitude. We haven’t seen anything fundamentally change in the business.” The shares have continued to fall. As of Tuesday the total reduction was by an incredible 55% - so surely there's a reason to all this? Well, there might be a few...
First, it's important to point out that LinkedIn has been a beacon of hope among the internet stocks that went live in 2011. While many floundered and struggled to get into gear, LinkedIn stock had actually tripled.
This time however, although the company’s quarterly results met forecasts, its profit projection of $3.05 to $3.20 for this year a share was far shy of the $3.71 Wall St expected. Revenue predictions also missed by about $700m. This was a rare moment for the company. Its sales and profit outlook had disappointed investors who had become used to the company matching expectations time after time. Unlike other companies where turbulence is perhaps expected, LinkedIn was seen as reliable and its shareholders enjoyed that fact, until now.
You've probably never heard of Bizo, but when LinkedIn acquired them in 2014 there was much buzz about what growth potential they could bring. Then, less than a year ago LinkedIn used Bizo to launch Lead Accelerator.
Lead Accelerator was a re-targeting solution for marketers, allowing them to target their website visitors through native and display advertisements on LinkedIn and its offsite ad network. When it launched, Lead Accelerator was seen as one of the best ways to capitalize on LinkedIn's robust data set of 414 million users.
But now, less than 12 months later, LinkedIn announced that it is essentially dismantling the service.
The significance of this shouldn't be underestimated. Unlike other social networks LinkedIn has always made its most money from recruitment, as opposed to advertising. This has worked well for it but Lead Accelerator was seen as a prospect for an additional revenue stream and a way to grow its business. Many fear that by pulling the plug they are returning to a smaller field, and should instead invest further in the area and exploit the the masses of user data the company holds.
Weakening Global Market
This is hardly surprising, but LinkedIn, like many other companies, is struggling against global headwinds. LinkedIn state that they are recieving continued pressure from APAC (Asia-Pacific) and EMEA (Europe, Middle East and Africa) regions - which account for a third of their business.
The lack of a defining factor, coupled with such a severe share price change, will be making tech CFOs sweat. Not having a clear reason for the drop in LinkedIn's price suggests a broader moevement among investors. According to Reuters traders are bracing themselves for equally violent reactions to Twitter and Pandora results coming out this week. Get ready for more bloodshed, this is going to be messy.