Why LinkedIn's Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of business-focused social network LinkedIn (NAS: LNKD) were getting a big raise today, gaining as much as 16% in intraday trading after the company reported second-quarter results.

So what: Revenue for the quarter ended in June was up a scorching 89%, to $228 million, even as profit fell sharply from $4.5 million last year to $2.8 million. On an adjusted basis, the company earned $0.16 per share during the quarter, which met analysts' estimates. Revenue was well above the $216 million Wall Street was looking for.

While the company is obviously attracting a lot more business, it's paying the price right now, as its bottom line reveals. LinkedIn has been hiring heavily and increasing marketing spend, which is tough on short-term profits, but hopefully going toward building a strong company for the long term.

Now what: Not only did LinkedIn's second-quarter results look solid, but the company also boosted its outlook for the full year. It now sees full-year revenue clocking in at $915 million to $925 million. The average estimate from Wall Street calls for just $910 million.

LinkedIn is a pretty impressive growth story and has been a great stock to own in 2012 -- year to date, the stock is up nearly 70% -- but investors jumping in now are paying quite a price for the expectation of continued growth. After today's big jump, shares trade at 88 times expected 2013 earnings. The stock could still pay off for investors even at that valuation, but the company will have to keep up its current white-hot growth trajectory.

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The article Why LinkedIn's Shares Popped originally appeared on Fool.com.

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