Donnerstag, 26. Mai 2011

Mania is Back: LinkedIn IPO Soars as Much as 173% in One Day

Proving that extreme sentiment can always get more extreme, inquiring minds are focused on the LinkedIn IPO that soared from $45 to as high as $122.70 in a single day.

Please consider LinkedIn stock soars in IPO
LinkedIn?s stock (LNKD +126.40%) soared more than 140% to $108.25, valuing the company at roughly $10 billion, as the professional-networking site began trading on the New York Stock Exchange.

Propelled by robust demand leading up to its initial public offering, LinkedIn?s IPO priced at $45 a share, at the top end of a recently raised range of $42 to $45 a share. Previously, the IPO pricing range had been $32 to $35.

The Mountain View, Calif.?based company is seen as the first in what could be a wave of social-networking IPOs, which could soon include Facebook and Groupon

LinkedIn announced in March that it reached 100 million members, with more than half of its members based outside the United States. The company said it was seeing its fastest growth in Brazil, Mexico, India and France.
100 Million Members - OK - What about Income?

LinkedIn boasts 100 million members. I am one of them. But what is a member worth? More importantly what kind of income does LinkedIn have, and what will the growth in income be?

Reality Lenses takes up that question in IPO Mania ? LinkedIn up 100% in 2 hours
So now, the market cap is in the $9-10 billion while company generated $9 million last year, and is hoping to generate $15 million this year. This means we have a price earnings ratio of about 950 and a forward PER of 650? Is my calculation completely wrong? Or are we back in the twilight zone?
Based on revenues Henry Blodget says Sorry, LinkedIn?s IPO Is NOT Proof Of A New Tech Bubble
LinkedIn is an established company. It generated nearly $250 million of revenue last year, and it should do more than $400 million this year. It has three strong revenue streams: consumer premium subscriptions, corporate recruiting subscriptions, and advertising. It earns money. And it has a huge growth opportunity. These reasons and others are why many institutional investors are lining up to buy the stock.

That's about 10-times this year's projected revenue.

Is 10-times revenue a high multiple? Sure it's a high multiple. But it's also a multiple that, depending on LinkedIn's growth over the next couple of years, could be well-deserved.
Is This a Bubble?

In a video in the above link, Blodget went on to say "LinkedIn is a profession product. You do not go there because your friends and family are there?"

OK, it's a profession product. What are the earnings? What are the expected earnings? Will the expected earnings pan out?

Betting on Social Networking

A Seeking Alpha Post by Albert Babayev in January 2011 called Betting on Social Networking discusses revenue and earnings.
Facebook, at the latest valuation of $50 billion, is valued at 25x its 2010 revenue and almost 105x earnings (Apple (AAPL) is 22x earnings). To get to the same earnings multiple as Apple, Facebook would have to quadruple its revenues and increase profits by 500%.

The current model values LinkedIn at 11x current revenue and 56x earnings. Such betting on growth would most likely require Facebook and LinkedIn to introduce additional and unproven layers of paid content to its users.

Currently, investors on SecondMarket.com have an Ask price on the LinkedIn stock at $25/share, or $2.625 billion, which would create a 16% increase in a 6 month period. As LinkedIn continues to introduce new premium channels, my forward estimated price target for LinkedIn is $27.50, which is a 28% increase over its current price.
LinkedIn Table of Earnings, Subscribers, Revenue



click on table to expand

The above table with thanks to Albert Babayev.

Assuming the earning's estimate is accurate we can calculate a PE ratio by dividing $10 billion by $48.139 million. I calculate not 950 but 208.

Regardless looking at expected growth that may not happen, I would call this a bubble. That does not constitute a tech bubble but it sure looks like a bubble in the price of LinkedIn.

Buying linked in at $122 is a bet on the Greater Fool Theory, nothing more, nothing less.

Addendum:

People chased the IPO as high as 122.70. After hours the price is down to $92.40. Those who just "had to have it" at any price are now down 24.7%

I suspect insiders will be bailing like mad as soon as the restricted lock-up period is over.

Reflections on LinkedIn

LinkedIn has 100 million accounts. How many are active? How often? For what purpose other than everyone being "linked in" to everyone else?

The key questions are:

  • How will the growing number of accounts translate into actual earnings?
  • What valuations will investors place on that growth?

It's fair to point out just because I have little use for LinkedIn at the present time, does not mean others feel the same. Indeed, I may even change my mind and find a use later on.

Merging Profiles

I setup a LinkedIn account primarily because hundreds have asked me to be "Linked In", not because I had a particular need.

In fact, I have two LinkedIn accounts, both in my name, one under an email account I no longer have. I do not know my password for that account. I would like to merge the profiles because people find the wrong (inactive) "Mike Shedlock" profile all the time.

Unfortunately LinkedIn offers no convenient way to merge profiles. Worse yet, I get invites all the time with no real way to reply to them. It is a mess.

People have been bitching about this for something like forever as a search for merging linked in profiles shows.

LinkedIn has a cumbersome solution that involves inviting everyone from one group to another.
Log into your old account and click on My Contacts.
Scroll down to the bottom of that page and click on Export Connections
On the next page make sure that "Microsoft Outlook (.CSV File)" is selected from the drop down menu and then click on Export.
In the pop up window select "Save to Disk" then click on Ok.
Make sure that the file was saved to your computer
Log into your new account and click on "Add Connections" with the green button in the upper left.
On this page click on the link at the top which says 'Import Contacts'.
Choose the source you would like to import from and follow the instructions.
All of your Contacts should now be uploaded. The system will then ask you if you would like to send an invitation to them. Say yes and you have successfully transferred your connections from one account to another.
Then log in to the old account you want to close. Go to "Account & Settings" (top right of page) and select "Close Account" in the right column. Make sure it's the right profile that you want to delete as there is no recovery..
Log into your account - DO NOT change the email at login or you will create a new (different account).
Go to "Account" >> "Personal information" >> "Email addresses".
Add a new email and click on "Verify" so LI will send you an email containing a link.
Then choose the one you want as default. I recommend not using a work email as primary.
Note: If you simply try to change it, you will create a duplicate account.
Got that?

How difficult can it possibly be for LinkedIn to automate that?

I did not bother. I do not want to pester people with LinkedIn requests even though I do not mind others asking to be LinkedIn.

By the way, If I do not reply to your request to be LinkedIn, it is because you found my profile that I no longer have access to.

One Final Point on Income

In order to justify the absurd valuation and growth metrics of LinkedIn, expect to see some high-profile announcements of earnings improvements in the first few quarters to come.

These deals will have been arranged in advance, but that will not make the growth sustainable. However, the paced announcement of stacked-up deals will provide time for insiders to unload shares to greater fools expecting the perpetual growth that is priced in.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


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