LinkedIn's Price Has Halved / Brian Ach / AP

Shares of social network LinkedIn fell 43.6% on Friday after disappointing fourth-quarter results. The company's market capitalization was cut by $11 billion, and at least nine brokers have downgraded its shares. However, there is reason to believe that LinkedIn's decline will eventually be replaced by growth.

The situation on the stock markets at the end of last week was unfavorable for the entire IT sector. The 40% drop in LinkedIn quotes in one day is explained not only by weak quarterly results, but also by the deterioration of the labor market – LinkedIn is a network focused on specialists, professionals. In addition, LinkedIn’s value in terms of “earnings per share” has been greatly overestimated by investors until now. The position of such companies can be very unstable, especially in conditions of market instability. At the same time, the negative reaction of investors to LinkedIn’s report was probably excessive, and the company may recover its positions in the future.

LinkedIn is actively investing in various areas of its business. The sales technology area is developing quite successfully. According to Heath Terry, an analyst at Goldman Sachs, the accelerated audience growth of the LinkedIn Talent Solutions division in the fourth quarter compared to previous periods suggests that LinkedIn has significant growth potential here. Perhaps in a few quarters, investors will be able to see the fruits of the company's current efforts.

LinkedIn itself forecasts that its revenue should grow by 20-22% in 2016. Last year, growth was 35%, and such a noticeable slowdown is partly explained by unfavorable exchange rate dynamics and slowing global economic growth. However, LinkedIn usually gives very cautious forecasts, and, as analysts from FactSet note, the Internet company's actual revenue has been higher than forecast in at least the last eight quarters.

Previously, LinkedIn shares were trading at 79 times earnings per share, but after Friday's collapse, that figure has dropped to 33. The new quotations may be fair, but in any case, they do not spell disaster, given the projected growth of the company's financial indicators. LinkedIn's business has a strong material basis, and its sources of income are diversified. For investors, this is a favorable moment: the company can now be compared to a job candidate who needs to prove his prospects and who does not expect a large salary.

Translated by Alexander Silonov

LinkedIn Shares Plunge 43.6% After Disappointing Quarterly Results