New Trade: Long LinkedIn ($LNKD) & Short Pandora ($P)

By: ispeculatornew
Date posted: 03.17.2014 (3:00 am) | Write a Comment  (0 Comments)

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This is my 9th long & short trade of the year and with an average return of 8%, I’m very happy with the results so far.  I do still have one trade above +20% that could be closed soon (TRIP/ADBE) but I do like being long TRIP at this point so I’ll let it go a bit longer.

As will be the case all year, my long & short stock picks will be available to see in my live spreadsheet:

http://www.intelligentspeculator.net/livetrades

You can see the numbers for both companies involved in today’s trade here:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaEarningsRevenue/Share
PPandora Media Inc35.27N/A73.2530.53132.523.782.621.65N/A3.54
LNKDLinkedIn Corp196.32860.1773.49-8.7657.214.1921.850.9805-02-201413.45

Wow… talk about slowing growth for both companies. LinkedIn is slightly better but both have discouraging trends when you consider their P/E’s.

LNKD Revenue (Quarterly YoY Growth) Chart

LNKD Revenue (Quarterly YoY Growth) data by YCharts

$LNKDLong LinkedIn (LNKD)

LinkedIn is a company that I’ve discussed several times and have been a big believer in. I have always had an issue with their valuation though and while it is coming down a bit, it still seems expensive to me. In the context of this trade though, it’s a perfect match to contrast two companies that are trading at virtually identical forward P/E’s. I do think LinkedIn will continue to show strong growth as it’s been able to diversify its audience but also has many different revenue sources and a corporate (and fairly wealthy) client base.

LNKD

Next earnings release: May 2nd 2014

$PShort Pandora (P)

I’ve been sceptical about Pandora’s ability to generate significant profits for some time now. The base of my theory resides in the fact that:

-Pandora very much depends on different ecosystems such as Apple’s iOS and Android devices. It’s not meaningful (yet) that Pandora seems to be excluded from the upcoming CarPlay but it’s certainly cause for worry.
It is simply too competitive: While some are slightly different products, Pandora does compete with the likes of Apple (iTunes and iRadio), Google, Amazon, Spotify, etc. Even if Pandora does end up having the best overall product, it will have less negotiation power both with consumers and artists/labels which will continue to squeeze Pandora’s bottom line.

is

So no, clearly I do not believe Pandora is worth its current forward P/E of 70 or so….

P

Next earnings release: 

Disclaimer: No positions on LinkedIn (LNKD) or Pandora (P) but I will initiate the trade on the open today

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