Yes I’m back on the road again. This week it’s downtown San Francisco for training with LinkedIn. It is great to get back into this city. I went to graduate school across the Bay Bridge at Berkeley Haas Business School. Going back brings great memories. Of course being right is the city means a dinner at one of my favorite Mexican places called Colibri right off of Union Square. I recommend the guacamole and carnitas. Consistently good.
With LinkedIn I was training a sales team on finance as part of a larger training. In part of my time presenting we looked at LinkedIn financials. There are some interesting things happening at LinkedIn right now. LinkedIn is a success story started in Silicon Valley. They are now a pretty fast growing $3 billion dollar company. The business has solid cash flow and is anticipating a great 2016. There are a lot of positive things happening at LinkedIn.
With the positive outlook for the business you would think the company’s stock must be soaring, it’s not. On February 5, 2016 their stock dropped over 40% shedding nearly $10 billion dollars of value. So what went wrong? First of all, the business did not meet the high growth rates from the past. It should be obvious that when your base gets to a certain size (like $3 billion in annual revenue) 30% growth a year has to slow down. Second, in the 2015 fiscal year LinkedIn sustained another loss in net profit. In fact, in spite of the revenue growth LinkedIn lost more than in 2014. Finally, there was fear that some of LinkedIn’s key revenue streams were considered more risky by analysts. Add to those issues a major overreaction by a few key analysts and you end up with a major sell off.
So how does LinkedIn recover? Just get profitable and manage the slower growth and keep generating cash and the stock will make its way back. That has already started to happen. When a business suffers a major stock sell off like this it is important not to overact and to stick with your strategy. This is especially true when your business still has good cash flow. We had some great discussions as a group on why the sell-off happened and how to respond. We decided that the current strategy was sound but there were things the sales team could do to enhance its sales approach to continue to build and grow the business.
It was a couple of great days for finance and I’m hopeful for a great start to a new relationship with LinkedIn. So until next time…next week in fact goodbye.