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Wall Street Beat: Internet stocks under the gun

Marc Ferranti | May 5, 2014
Twitter, LinkedIn and eBay quarterly earnings show what Internet companies are up against.

Twitter, LinkedIn and eBay quarterly earnings show what Internet companies are up against.

An uptick in IT spending this year is expected to boost sales for tech vendors. But fierce competition among social media and e-commerce companies — which gives them a voracious appetite for cash to fuel growth — is making investors nervous about some Internet stocks.

LinkedIn Thursday reported that for the first quarter, revenue was up a healthy 46 percent year over year to US$473.2 million.

"We made significant progress against several strategic priorities including expanding internationally with our China launch, extending our shift to content marketing, and furthering our goal to make LinkedIn the definitive professional publishing platform by giving members the ability to publish long-form content," said CEO Jeff Weiner, in a statement.

Those efforts showed progress financially. Revenue from Marketing Solutions products totaled $101.8 million, an increase of 36 percent year over year.

Various programs designed for the recruitment and job search market also made gains. Revenue from Talent Solutions products totaled $275.9 million, an increase of 50 percent year over year, and sales from Premium Subscriptions products totaled $95.5 million, an increase of 46 percent.

But creating and marketing these programs costs money, and LinkedIn reported a loss of $13.4 million for the quarter, compared to a profit of $22.6 million for the year-earlier period.

Not only that, but LinkedIn forecast 2014 revenue below analyst expectations. It raised its sales forecast for 2014 to $2.06 billion-$2.08 billion, but that was nevertheless below analysts' estimate of $2.11 billion, as polled by Thomson Reuters.

The data shows what Internet and social media companies are facing: expectations for strong growth, but the need to spend money to achieve that growth.

LinkedIn suffers from concerns about slowing growth. Susquehanna analyst Brian Nowak wrote in a research note that LinkedIn is likely to add about 6,800 customers this year, below last year's 8,000. He cut his price target on the company to $200 from $280. More than a dozen other analysts also cut their price targets or recommendations on LinkedIn stock.

In Friday afternoon trading, LInkedIn was down by $8.64 to $152.58.

Twitter's earnings report Tuesday had issues similar to LinkedIn's: top-line growth but bottom-line loss amid concerns about future growth. Twitter reported that quarterly revenue jumped 119 percent year over year, to $250 million. The company, however, suffered a net loss of $132 million compared to a loss of $27 million a year earlier.

Among other things, the company laid out some hefty capital expenditures. Purchases of property and equipment for the first quarter of 2014 were $50 million, while additionally, $17 million of equipment was financed through capital leases.


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