Tomorrow, should you be so inclined, you can make your first investment in a major quoted social networking company. With all the hype and the many articles about the new ‘tech bubble’ (many quoting us!) to date your only opportunity to invest in the phenomenon would have been in a private company. Difficult if not impossible for most.
Tomorrow (Thursday) LinkedIn shares will start trading. The IPO will be priced today at the top end of a $35-$45 range, which would raise c$400m and value LinkedIn at $4.25b . That’s c17x LinkedIn 2010 sales of $243m. It’s pretty meaningless to quote the PE as LinkedIn made just $15.4m profits in 2010.
The post-IPO market will be greatly affected by the illiquid nature of the stock as <10% of the shares are being floated – which is very low. It is easy to see a rapid rise in the share price purely because of its rarity value.
LinkedIn does have revenues and some (albeit minimal) profits. It also has a viable business plan. To me it's one big recruitment site. Unlike other social networking companies, it is firmly ‘Enterprise-based’. Indeed many of our recruitment/head hunting clients and friends swear by it. One told me recently that LinkedIn was always open on his PC and was used constantly. Here at TMV it is routine to check out CVs on LinkedIn before we write something about a new CEO or whatever.
For me personally, I have many hundreds of LinkedIn connections but have never received a message or anything of any value. Maybe that’s because I’m not looking for a job anymore!
I am sure there will be huge coverage of the LinkedIn IPO. I’m sure most articles will contain the word ‘bubble’. At these valuations, I suspect its use is justified.