After announcing the release of a weaker-than-expected earnings report on the evening of Feb. 4, shares of professional networking website LinkedIn fell as much as 40 percent the following day and took $10 billion off the company's market capitalization.
Shares of the site had first begun to slip during after-hours trading on Feb. 4 before completely falling off a cliff Feb. 5, which is expected to the worst day in the company's history since it launched in 2011, CNBC reports.
Why is this happening? Because LinkedIn posted an $8.4 million loss during 2015's holiday quarter as it continues to invest in new products and forecasted weaker sales for 2016 than Wall Street analysts had expected, according to Mashable. LinkedIn is also losing revenue from its premium subscription business.
Michael Pachter, an analysts for Wedbush, wrote the following in an investor note obtained by Mashable:
"The company has historically been quite conservative with its guidance, and almost routinely delivers upside to guidance and consensus. On the other hand, recent market volatility suggests that investors lack the patience to play the guidance game and wait for companies to exceed lowballed guidance."
The other parts of LinkedIn's earning report did not suggest that everything is terrible; it has 400 million members and continues to grow its usage and interactivity with smartphones and tablets, and adjusted earnings were better than expected. But the company is not growing fast enough for investors and has missed the mark analysts had estimated, a characteristic it shares with other companies like The Match Group and GoPro, according to Mashable.
In prepared remarks, LinkedIn CEO Jeff Weiner said that:
"Our strategy in 2016 will increasingly focus on a narrower set of high value, high impact initiatives with the goal of strengthening and driving leverage across our entire portfolio of businesses. Our roadmap will be supported by greater emphasis on simplicity, prioritization, and ultimate ROI and investment impact."