LinkedIn Is Worth $9 Billion? The New Tech Bubble Has Arrived.
slate.com
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A few things -
1) Everyone is assuming that revenue will explode, and more importantly, profits will really, really explode.
2) Everyone is discounting intent. A social network for networking is very different from a site you go to to find jobs.
The assumption that LinkedIn is going to destroy sites dedicated to job hunting is just that - an assumption.
There is a higher chance that people will not change their intent from social networking to jobs - than there is that people will.
3) Everyone is discounting competitors.
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The biggest warning flag to me is the assumption that all these tech companies are just waiting to hit some magical figure (say 250 million users) and then they will turn on the magic tap of unlimited profits.
A company that makes a lot of profit from the get go is very different from a company that stumbles into a huge source of profit and those are both very different from a company that optimizes for customers of bad intent and thus never reaches high profitability.
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LinkedIn is worth $9 billion because Wall Street needs a way to get everyone's savings into their bonuses. The party will last for a couple of years. LinkedIn, Yelp, Groupon, Facebook, Zynga, etc. and every day people will be milked.
The same strategy - release a small amount of shares and drive up prices - appeal to people's greed to make a quick buck.
Then 90% of these companies will go down from 10 billion and $50 billion valuations to $1 billion and $5 billion valuations.
There is no bubble for solid (market-validated) business plans with reasonable, actionable revenue models.
If that's right, then yes, they are crazily overvalued at this price. Maybe I will short them at some point.
The revenue per paying customer is high, but their conversion rate is low. When the economy picks up again and companies start hiring I can see both of these numbers improving
They currently only capture about 2-3% of the US job search market
They are not yet a mature company, they are still pouring all revenue into sales and marketing, R&D and dev - I think they will only be more mature and start showing the expected 35-40% net in 3-4 years time
They are still only 60% USA and 40% international - a lot of overseas growth to work out
$400M this year, I can see them eventually start leveling out at ~$4-5B a year in revenue where they will have to start coming up with new streams - which is certainly possible.
They could completely wipe out Monster and the others if the next few years work out well
They have a very good brand and large social network and have only really focused on monetizing the job search portion of it to date - there are many other apps that they can layer onto their platform (and they should open up that platform to others who want to build out ontop - I am surprised they haven't)
I think the risk of them not growing into the current price are pretty low. They can show 3 years now of double-or-more revenue growth and exceeding targets.
I can't see any of their competitors grabbing the market that they currently have and the market they are moving into. The LinkedIn brand is strong and if you talk to people the experience of recruiting through it is apparently brilliant. The only problem may be Xing and others in Europe
This IPO is a huge marketing event that will see a one-off big spike in numbers again. Everybody is talking about LinkedIn at the moment - I dug up my old account which I hadn't logged into for 3 years. I must assume that many others are doing the same. They have never had this much press and the marketing value of the IPO must be in the tens, if not hundreds, of millions
I wouldn't short them - no way. I wouldn't buy at this point either - but I can see them becoming a ~$15B company on $500M net and $1.5B revenue company in ~3 years. Their growth and multiples will start tailing back at that point
The underwriters who own shares from the IPO are not allowed to lend them out for short selling for 30 days. The institutional/retail investors who own shares can lend them out, but it is too soon for that to be enough volume to take any meaningful short position.
Of course, both your approach and mine make some assumptions about when the market will correct; mine assumes that it's further out and yours assumes that it's closer in, and timing that sort of thing is ridiculously difficult.
+ Ad revenue. + Their paid plans average $30 a month.
I would not short them yet.
Corporate solutions: http://talent.linkedin.com/
Edit: typo.
If sources are weak, or only a single source is found, headline writers will hedge their bets by posing the headline as a question
" But it does not mean that we are returning the big tech bubble that we had in the 1990s. LinkedIn is only one company, and one crazy IPO does not a bubble make."