ASK JEEVES: If you paid $100 for a share of Linked In this morning, or $95 yesterday afternoon, or $45 yesterday morning, and you intend to hold that share for a while, one of the two of us has a gross misunderstanding about what Linked In is.
I would love -- love -- to see a breakdown of people who decided to purchase shares of Linked In stratified by age.
What makes you think people are buying this out of a belief in fundamentals? It's hype.
ReplyDeleteWho thinks people are buying this out of a belief in fundamentals? I have no fucking clue why people are buying this.
ReplyDeleteLinkedIn's blockbuster IPO has triggered a predictable reaction: Howls of outrage that the valuation is obviously "insane" and cries of "hype!" LinkedIn is a young company <span>investing</span> heavily for the future: It has not yet achieved steady-state profit margins. But still LinkedIn's cash flows do tell you that it is a real company with real products and real growth and real profits and diversified revenue streams. You can argue about LinkedIn's value, and you can argue about what LinkedIn will do in the future, but you can't reasonably suggest that LinkedIn is an unproven "startup" with little more than a business plan.
ReplyDeleteThere's one thing we can say for certain: LinkedIn's valuation relative to its current and near-term expected performance is very aggressive. The stock is <span>trading</span> at about 20-times this year's expected revenue of ~$500 million. Some companies do trade at ~20-times revenue, but only extraordinarily profitable companies that are growing extremely quickly. LinkedIn is growing very quickly, and some smart investors believe that LinkedIn will eventually have super-high profit margins, but the company has yet to demonstrate this yet. So, at the current valuation, investors are taking the future profitability on faith. If they're wrong about it, they'll get clobbered.
Opinions on their future differ. But markets determine value-- an enterprise is worth what someone is will to pay. And the market has spoken.
Does the IPO mean we get to party like it's 1999 all over again?
ReplyDeleteNigel from Cameroon, I'm glad you like the comment from Nigel from Cameroon. Correct citation form would be to use quotation marks around the Business Week article and then provide a link (http://www.businessinsider.com/the-truth-about-linkedin-2011-5).
ReplyDeleteAnyway, there's nothing inconsistent between the Business Week article and what I wrote.