Analysts at Wall Street’s major financial firms initiated wholesale coverage of LinkedIn (s LNKD) on Tuesday, putting forth their opinions of the company’s future growth prospects and estimates for how the stock should perform. Their predictions for LinkedIn? In a word: Bullish.
At its May 9 initial public offering, LinkedIn’s stock priced at $45 per share, but the shares quickly surpassed that within seconds of its market debut. For the past couple of weeks, LinkedIn’s stock price has generally hovered between $65 to $75, giving the company an average valuation of around $6.5 billion — not bad at all for a firm that made $2 million in net income on $250 million in gross revenue last year.
But some of Wall Street’s most powerful analysts think the stock should be trading at significantly higher valuations. In reports issued Tuesday, Bank of America Merrill Lynch analysts priced LinkedIn’s 12-month price target at $92 per share; UBS analysts’ 12-month price target is $90 per share; Morgan Stanley’s 12-month target is $88; and JP Morgan’s 12-month price target is $85. It bears mention that Bank of America Merrill Lynch, Morgan Stanley, and JP Morgan all acted as underwriters for LinkedIn’s IPO; however, the SEC mandates that banks maintain total separation between their equity research and investment banking operations.
The street heard the analysts’ predictions loud and clear. LinkedIn’s stock closed Monday at $76.38 per share, and on Tuesday, the price popped: The stock opened at $81.40 and jumped up to $86.03 within the first 40 minutes of trading. At 2pm EDT Tuesday, the stock was holding steady at $84.06.
Why the bullish outlook? The analysts pointed to several key factors:
- Big opportunities for user growth.
With 100 million members, LinkedIn is far from reaching its saturation point, according to analysts. JP Morgan’s report reads, “LinkedIn’s 100 million member base implies just a 16% penetration rate of the worldwide professional market… We are projecting LinkedIn’s member base to reach more than 250 million by the end of 2015, which would suggest a 42% penetration rate off the current professional market.”
- Diversified revenue streams.
Wall Street hates it when a company has all its eggs in one basket. All the analysts expressed satisfaction in the fact that LinkedIn gets its money from three distinct verticals: Hiring solutions (commissions on jobs sourced through LinkedIn), Marketing solutions (online ads), and premium subscriptions.
- Online advertising is poised for a boom.
And analysts see LinkedIn as well-positioned to benefit from it. The UBS report reads: “We are bullish on the online advertising opportunity for LNKD, and note that user time spent online is disproportionate to the overall online ad spend. Roughly 28% of time is currently spent online, but the online ad spend accounts for only ~13% of the total spend, representing a roughly $50B global opportunity.”
- LinkedIn is generally destined for greatness.
At least according to Morgan Stanley’s report, which waxed rhapsodic about the company’s potential: “Every once in a while, a company comes around that transforms an industry in such a way that investors have difficulty grasping just how big it may one day become. Amazon.com, the $85B book retailer; Google, the $150B blue link company; eBay, the $40B beanie baby company, and Netflix, the $13B DVD-by-mail company … we believe LinkedIn can be one of these companies.”