If You Missed LinkedIn's Run-Up, Consider Waiting

Internet growth firms aren't valued the same as say, an IBM, but the 16% jump in share price that LinkedIn (NAS: LNKD) shareholders enjoyed on Aug. 3 has the makings of an emotional, "yahoo!" sort of reaction. The result has LinkedIn shares priced through the roof. Even a number of analysts got into the action, either raising recommendations or, at the least, reaffirming them. And now, here we go again, with another buying spree to start the week.

Yeah, there's a lot to like
It's not hard to see why shareholders and investors got so excited. Even before the second quarter announcement, LinkedIn was a solid growth opportunity for investors. It has a clear business plan, multiple lines of revenue, and limited competition -- for the time being -- and that's all good.

Unlike a Netflix or Groupon, LinkedIn has made a concerted effort to grow several, distinct business lines. And the hiring solutions, marketing solutions, and premium subscription units all performed admirably. Slightly disconcerting, however, is the hiring solutions' business taking an increasing share of the $228.2 million in total revenue in the second quarter. One of LinkedIn's strengths -- its diversification of business lines -- is slowly eroding. Revenues for the rapidly growing unit more than doubled to over $121 million, or about 53% of the total, up from 48% of revenues in 2011.

LinkedIn's chief rival in the jobs market, Monster Worldwide (NYS: MWW) , took a decidedly different direction after announcing its financial results for the quarter. A decrease in revenue, earnings, and downward guidance for the balance of 2012 hit Monster shares hard. Then along comes LinkedIn's results, not to mention its upward guidance for the balance of the year! But there are a couple of considerations worth noting.

One, Monster is in a different growth stage than LinkedIn. As a more established player, it certainly can't be expected to keep pace with year-over-year doubling of revenues. That's Internet upstart material there. With that said, clearly Monster disappointed, but that segues to consideration No. 2 -- it's a matter of degree. I loved LinkedIn's hiring solutions growth, along with revenue increases in its two other lines, but the 16% bump remains over the top.

A couple of concerns
The declining revenue percentages that the marketing solutions and premium subscriptions business units account for is, as I've alluded to earlier, slightly disconcerting. Total revenues for the lines jumped 64% and 82% respectively, but the marketing solutions segment in particular continues to make up less and less of overall sales. Marketing solutions' decline to 28% of LinkedIn's total revenues from last year's 32% isn't a "sky is falling" moment, but it's worth keeping an eye on. If LinkedIn wants to be known for a balanced business model, it can't let this segment fall by the wayside.

The bigger concern going forward, as it has been since the get-go, is competition. As the first player in the game, LinkedIn was able to successfully establish and lead the business networking market. At one time, Viadeo -- the 45 million member business networking site -- seemed the biggest threat to LinkedIn. But it's since taken a backseat to others in the long-term scheme of things.

Facebook's (NAS: FB) professional network Branchout is already one of the most popular apps on the site. Of course, Facebook is facing all sorts of challenges right now, but it's simply too big to ignore. The Google (NAS: GOOG) Plus network wasn't designed to connect business professionals per se, but many use it as such. And how long before the $210 billion behemoth that's Google decides to get serious? If LinkedIn keeps cranking out these types of results, probably not long.

Whether Internet growth is firm or not, trading at a trailing P/E near four-digits, and 91 times next year's earnings, means that the company is getting a little ahead of itself. Granted, the trailing earnings were a bit skewed, with the jump in spending that LinkedIn committed to in Q2 -- but it's steep, regardless.

LinkedIn shares aren't retreating off the 16% run-up, and that's a good sign for long-term shareholders, or those who got in on the ride up. But now? If you missed all the excitement, give the stock price some time to settle before jumping in. Solid company, better management, and a definitive plan will bode well for shareholders over the long-haul. But the Aug. 3 run-up was fueled with emotion on top of fundamentals, and you'd be wise to let the back-slapping die down a bit before taking the LinkedIn leap.

No doubt LiinkedIn is up-and-coming, and long-term investors willing and able to ride out the emotion-laden swings should benefit. But it's far from the only high-growth tech play out there. With Facebook's near 50% decline since its IPO, some investors might think now's the time to jump in. However, before doing so make sure you know all of the key opportunities and threats facing the social network, something we've laid out for you in our brand new premium report on Facebook. Make sure you claim your copy today by clicking here.

The article If You Missed LinkedIn's Run-Up, Consider Waiting originally appeared on Fool.com.

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