LNKD IPO opens huge at $83(google.com) |
LNKD IPO opens huge at $83(google.com) |
right now's not the time to pick nits on their valuation this whole thing is going to be completely out of whack for a while.
The way this stock is moving now, a stock price of $83 seems downright conservative.
(* Yeah yeah, right now it's not)
And, agreed that a price tag of $100 a head, if you will, is cheap in terms of value for marketing and recruiting/employment services.
On a side note, how I let this fall from my radar to get in on the rush at the bell and sell by lunch is beyond me. I hope others here weren't so lazy and picked up some cash.
That is one of three revenue streams. All three have been growing 100% YoY, and ~60% of it is USA (ie. they haven't grown out internationally yet)
BTW I made a Tagxedo (word cloud) of this morning's LinkedIn News, and one prominently featured word explains all (the word starts with "F" and ends with "k" :D)
http://daily.tagxedo.com/may-20-linkedin-rockets-skyward-in-...
The valuation of LinkedIn has nothing whatsoever to do with the business, its performance, future potential or current assets.
It has everything to do with demand for its stock being high.
At some point, the fad will die and a whole host of small time investors will lose their shirts (or houses, life savings, retirement funds, what have you).
Like all pyramids, if you can get in now you probably will make some money, but don't ever fool yourself into thinking this has bearing whatsoever on anything but your position in the pyramid. This will come crashing down. LinkedIn is NOT a $4 Billion company. It's just a matter of when.
Maybe when we discover true stock-picking clairvoyance this will change and every stock's price will be based on its true future potential, but I wouldn't hold my breath waiting for this to happen anytime soon.
I don't have an issue with demand setting the price; I have an issue with that demand being justified by linking it back to the potential performance of the company in such a way that anyone with half a brain can seen is bordering on the ludicrous.
If the problem was limited to investors that were prepared to take risks and pay for their own loses that would be one thing. The issue I have is that when these things do come crashing down, it seems to hurt everyone but wall street.
EDIT: On the flip side, you can't blame the banks if the institutional investors are simply overpaying.
That is ludicrous
They only made $15 MM last year. That's a perfectly acceptable profit and a well run company, but it is not billions of dollars.
A valuation of 6.5 billion dollars on $15 million net income. Let that sink in.
No, that's not how it works.
LinkedIn priced their IPO at $45/share, meaning they raised $352.8 million. The share price right now has no impact on how much money they raised.
Year; Revenue; Costs; Income 2008; 78,773; 84,282; (4,522) 2009; 120,127; 123,482; (3,973) 2010; 243,099; 223,523; 15,385
expense growth is 46%, 82% yoy. revenue growth is 52%, 103% yoy.
So, you have a company that is growing revenue faster than expenses, has 100% year over year revenue growth, and has just hit the inflection point to be profitable... and you want to place a market average P/E on it?
But... I will say that I would be encouraged if I were a shareholder by this:
'The company' chief executive officer, Jeffrey Weiner, said in an interview that he wasn't placing much importance on how his company's stock performed on its first day. Mr. Weiner's stake in the company is now worth more than $200 million.
"To be honest with you, I didn't give a lot of thought to what the opening would be like," Mr. Weiner said. "This isn't necessarily indicative of anything. The market will do what it will do. What we are completely focused on is our long-term plans and our fundamentals, and getting that right."'
(http://online.wsj.com/article/SB1000142405274870481660457633...)
If LinkedIn can make $243M/year selling to recruiters and job seekers in a recession, what do you think happens when we have a global recovery and the inevitable hiring boom comes?
With LNKD you should be looking at revenue, competition and market penetration (rev is doubling yoy, three sources, 4500 business customers paying avg. $23k a year, 75% of fortune 100, 60% USA - which means they have a lot of growing to do). they are spending everything that comes in on product development, sales and marketing and R&D - it is all growth phase. $400M revenue this year.
To add - LinkedIn isn't really a 'social' company either since its revenue is not based on ads. They are in the recruitment market, where companies are known to pay tens of thousands of dollars for recruitment leads. And in that regard, they still aren't even exploiting their position as much as they could be (which means they have a lot of room to grow both out and up)
If they wanted to impress skeptics they could cut back all sales and marketing and development and just bank the 450M and pay out a dividend, in which case it would be a market cap of ~$4B, and a lot more love in comment threads on the internet :)
Welcome to the rigged game.
LinkedIn is clearly focused on long term gains over short term profits.
"Let's start by defining 'investing.' The definition is simple but often forgotten: Investing is laying out money now to get more money back in the future — more money in real terms, after taking inflation into account." [1]
-Warren Buffett
"Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return — even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result." [2]
-Charlie Munger
- - -
[1] http://money.cnn.com/magazines/fortune/fortune_archive/1999/...
- hard to predict if LinkedIn will be around and in what form in 20 or 30 years
- Munger's statement is true if the company can keep reinvesting capital at that ROE over a long time period. In fact, beyond an inflection point, a company like Microsoft or LinkedIn can become a natural monopoly and increase revenues and profits a lot with relatively little capital - there are actually INCREASING returns to scale. Which is what LNKD investors are apparently betting on.
Tech investing is more about the Next Big Thing, who is the next Microsoft or Google, and less about is there some moat that lets them earn 18% on capital and keep reinvesting the capital over a long period, which is where Buffett is a master.
http://www.newyorker.com/online/blogs/johncassidy/2011/05/li...
Any startup survivors from the last one wish they'd done things differently?
There are of course counterarguments: - Other startups are getting too much money at the same time you are, and probably spending it in irrational ways that may make it harder for you to be profitable, such as overpaying on advertising and hiring. The same argument can support the idea that the best time to start a startup is during a recession, when the big companies aren't investing enough money in growth. - When the bubble bursts, there will be far more startups looking for money than money looking to be invested, so you're more likely to have to throw in the towel after bursting.
On the balance, I agree with the advice of most experienced entrepreneurs I've heard--err on the side of worrying more about yourself, your idea, and how you'll execute, and less about the economic environment at the time.
edit: wrong multiple
It's so disappointing to watch...
But it's not a bubble if we're able to tell it's a bubble, right?
He brought up one such bubble in a lecture in front of the students, explaining to them that their investment made no sense considering the average dividend. He expected this explanation to crush the bubble since now everyone was aware of it. What happened instead was students going "wow, a bubble, I must get in on it!" and the stock just going even higher.
If the IPO window's open, it's time to try and climb through it! I couldn't be more excited.
http://www.bloomberg.com/blogs/paul-kedrosky/2011/05/some-li...
There will be less Aeron chairs this time.
People should educate everyone on why we have a bubble with arguments instead of shouting "bubble! bubble!", every time people discuss the finances of start-ups.
Hitler! 1984! Communism! Statements aren't arguments.
Things are going to get very, very interesting.
Next up, Zynga, Twitter, Facebook, Yelp, Pandora...
ref: http://socialmediaobserver.wordpress.com/2011/05/20/linkedin...
Also:
Morgan Stanley, BofA Merrill Lynch, J.P. Morgan may divvy up $21 million to $24 million -- On the horizon: Facebook, Groupon, Pandora
This was from a story on Yahoo finance today. Seems Main Street investors weren't welcome yesterday. Their demand for shares today could well be driving the price. I like LinkedIn, but this feels unduly speculative.
Quora has been able to thrive and create a truly compelling site in a short time, even with LinkedIn Answers having so many numbers in its favor.
Namesake has been getting traction and executing well -- their valuation has definitely just gone up as well.
should have put a lot of money on that. I think it will hit $18-20B market cap in no time
judging by the volume (9M traded so far, which is more than what was listed) there seems to be a lot of that going on
The company registers to sell a certain number of shares, this is additive to the total number outstanding, so once you have what will be the new total, and what you think will be the value of the company, you divide value by total and that is your price per share.
Then you go out on a 'road show' where you talk to various other banks and other investors and you say "We think the company is worth between X0$ and X1$ for these reasons and that is a share price of between $Y0 and $Y1, would you be interested in buying shares?" and they may say "Not really." or "Sure we'd love to by n shares at $Y0 and maybe n1 (often less than n) shares if it was at the high end of $Y1"
Now at some point on this road show, if you're good and the company's prospects look great, you have people who have signed up to buy all your shares, even if it comes out at the higher price. That has validated your price point, now if you haven't even talked to half your prospects you might decide to raise the offering price or increase the number of shares, you go back and call the folks who committed before and make sure they are still on board.
Now you have a list of people who are willing to buy your stock, and then when the market opens you sell them that stock at the high end price, and collect your money.
Now those people (and the bank that is the 'market maker') for the stock may be willing to sell the stock for a premium over what they paid for it. Other investors who have read the S-1 but weren't part of the initial roadshow might say "I'd buy this stock even if it was 20% higher than that initial price." and they put in a buy order for it, someone says "Hey a quick 20%! I'm down!" and sells them the stock they bought at the IPO price from LNKD.
The price bounces around and then lands at a point where nobody else is willing to buy it for any more money than it is being offered at. Nominally the 'market' price for that company.
Now if people start buying the stock for any price because they just "want in on the action." as it were, then the price can rise above the price that is supported by the fundamentals of the company, and that is a speculative price rather than a market price. Stocks priced on speculation define a bubble.
So LNKD priced at $45 I think, they had more demand than they could meet, and the price has risen. Are speculators buying it? Hard to know yet but it seems like there is some speculation going on.
Why else would a CEO say anything different? I've been through an IPO and basically heard the same thing from the CEO.
So one potential lesson from parallels to the NSCP 1995 IPO is that there may be 4-5 exciting years ahead.
People are going to be 'networking' most intensely when they don't have a job or are worried about their current job. If there are fewer people looking for a job and those people get pulled out of the market more quickly, there's less money to be made from them.
LinkedIn earned their 100 million users by providing a professional networking platform where the users could choose who they network with. When the userbase has less of a choice regarding who contacts them, they'll abandon linkedIn as fast as a teenager terminating his MySpace account.
http://blogs.forbes.com/greatspeculations/2011/05/19/linkedi...
If LinkedIn wants to capture some of the value from the multiple they're seeing today, they can simply sell (or issue) more stock. Doubling or tripling your IPO price is not a tragedy by anyone's standards.
do you have an references for that? were these offerings available to small retail investors?
LinkedIn is incredibly successful in IT related markets, mostly in the US.
It's like when Amazon started, it was very successful selling to people involved with the internet in some professional capacity.
Everything outside of that is subject to lockout periods (and in the case of executives they are also vesting on new stock)
Morgan Stanley & Co. Incorporated may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period.
Related poll: http://www.wepolls.com/r/462580/Is-it-right-for-Wall-Street-...
Why does the price 90 days from now matter to the judgement of whether or not the initial sale - today's sale only - was a success? If the price drops below the initial sale value, then $45 today will definitely seem expensive to people buying it 90 days from now. But I don't see where it would mean that the company made a mistake in the initial offer of $45/share - in fact, wouldn't it look like the company got a good deal, in selling the initial shares at above-market-values (in 90 days from now)?
Forget all the junk you think you know about markets. A stock is something you buy. How many things have you bought that doubled in resale price the day you bought it? I'll bet it's a vanishingly small number.
From a producers point of view such a situation means you underestimated demand for your product, which means you didn't do enough research.
In line with the common stupidity of IPOs, LinkedIn trusted a conflicted party to do that research for it.
LinkedIn paid a fear tax. Fear that if they tried to buck the statu-quo like Google they wouldn't come out as well, fear that if they tried something shockingly new like selling stocks directly to individuals who want them they would fail.*
I don't mind when people note the standard way things are done, but for the love of Bob don't pretend the way the stock market works today is fundamental, immutable, or even close to Good.
* Speed argument on this point: Illegal! -> Benefits from that? -> Ignorant investors protected! -> Uh huh, other externalities? -> Large investors make millions! -> We're done here.