LinkedIn Corp. shares lost almost a third of their value after the professional networking site forecast a year of slower revenue growth amid signs of weakness in sales of advertising and marketing tools.
Revenue will be about $820 million in the first quarter, and $3.6 billion to $3.65 billion for 2016, the company said in a statement Thursday. That missed analysts’ average estimate for $867.1 million and $3.9 billion, according to data compiled by Bloomberg. LinkedIn had 414 million users in the fourth quarter, up from 396 million in the prior period.
“In this market, there’s no mercy for a miss,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. “While the fourth-quarter results were solid, the outlook fell short as global macro and elevated investments pose headwinds for 2016.”
While Chief Executive Officer Jeff Weiner has made investments to diversify the business, like acquiring education website Lynda.com for $1.5 billion last year, it will be a while before those efforts contribute meaningfully to revenue. In the meantime, LinkedIn is facing a slowdown in its marketing-services business, which companies use to find potential customers, show them ads and relevant information and generate sales leads. Sales to recruiters, who use LinkedIn to find candidates for jobs, are also slowing.
The shares of Mountain View, California-based LinkedIn fell as much as 30 percent in extended trading. The stock advanced less than 1 percent to $192.28 at the close in New York, leaving them down 15 percent this year. The shares declined 2 percent in 2015. If LinkedIn’s shares stay near post-earning lows, it could cost co-founder Reid Hoffman more than $750 million, lowering his net worth to about $3 billion, according to the Bloomberg Billionaires Index.
LinkedIn has a tendency to give guidance that misses expectations, only to beat it later, said Colin Gillis, an analyst at BGC Partners. “This thing moves a lot on earnings,” he said. “We’ve seen it before.”
LinkedIn is narrowing its focus in some areas, which is hurting sales. For example, it’s discontinuing a tool that helps marketers find leads, incorporating the technology into its sponsored content business instead, contributing to a slowdown in its marketing solutions business. Revenue in the marketing solutions division rose 20 percent in the fourth quarter to $183 million.
The professional-networking website is also facing slower economic growth in Europe and Asia, though it said China is its fastest-growing country for new members. The company has a standalone app for Chinese users and has devoted much of its efforts over the past year to push deeper into that market.
For the fourth quarter, LinkedIn reported a loss attributable to common shareholders of $8.43 million, compared with the average estimate for $50.2 million. Revenue climbed 34 percent to $862 million, topping the prediction for $857.4 million. LinkedIn has seen average annual sales growth of about 56 percent since its 2011 initial public offering.