Posts Tagged ‘lnkd’

  • Putting LinkedIn’s Price Into Context
    , May 24th, 2011 at 2:01 pm

    How expensive are shares of LinkedIn ($LNKD)?:

    Surging demand for social-media stock and a comeback in venture-capital IPOs propelled LinkedIn to a high of $122.70 in its first day of trading from an initial price of $45. With a market value of $8.45 billion, the company must boost revenue by 148 percent a year, twice its growth rate since 2009, to bring its price-sales ratio in line with the Dow Jones Internet Services Index by 2013, Bloomberg data show.

    “This is not something we even consider investing in,” said Haverty, who helps oversee $35 billion in Rye, New York. “This is a sideshow. It’s a magic show,” he said. “The only question for the investor is how soon they should sell.”

    I think when most people say “this time is different,” they really mean, “this time is different because now I own the stock.”

  • LinkedIn and the Winner-Take-All
    , May 23rd, 2011 at 8:43 am

    With the success of LindedIn’s ($LNKD) IPO, I want to discuss one of the reasons, in my opinion, why Internet stocks have caused such a frenzy for a little over a decade.

    One of the popular ideas that swept thinking circles in the mid-1990s was the impact of what economists call “natural monopolies.” The idea was also known as “the first mover advantage.” Robert Frank’s book, “The Winner-Take-All Society,” also touched on these themes.

    The general idea is that if a company is the first to unveil a certain type of product, it becomes “the standard.” This is crucial because it’s in everyone’s interest to recognize it as the standard.

    Probably the best example is Microsoft’s ($MSFT) Windows. Once Windows was established as the standard, so the idea goes, no one could knock it off and the company enjoyed an enormous competitive advantage. There’s no need to for two operating systems. Similarly, there was no need for VHS and Betamax to exist. (In econo-speak, a natural monopoly has very high fixed costs relative to its variable costs.)

    Likewise, when one company is established on the Internet, say selling pet supplies as advertised by a sock puppet, it will hold a near-monopoly over the entire industry. As a result, the normal metrics of valuing a company need not apply. Or so we were told.

    I remember how often I was told that some Internet stock was going to be huge and that it all had to do with the QWERTY keyboard. This was the easy way to explain the first-mover advantage. The story is that the QWERTY keyboard was established in the 19th century even though it’s an inefficient layout. The reason it won out, and is still around today, is that it became enthroned as the standard. QWERTY became the winner, and it took all.

    The takeaway is that the better mousetrap didn’t win the race (I’m mixing metaphors; deal). The worse keyboard board won only because it was first. Again, so we were told.

    It’s hard to emphasize strongly enough how widespread these ideas were. In Bill Clinton’s re-election campaign, he often warned voters about the emergence of the winner-take-all society. In 1998, there was even a new tech magazine called The Industry Standard.

    Today, LinkedIn potentially holds a similar winner-take-all grip over the resume market. Why bother being listed some place? The problem with the winner-take-all thesis is that it doesn’t always hold. Industry standards do get knocked out. It may take time, but it can happen.

    By the way, not all the stories we told we true. In typing contests, for example, QWERTY has held its own as an efficient layout. The biggest threat to natural monopolies comes, not from a competitor, but from innovation. As a result, these standards can be far more vulnerable than we realize. That’s why I’m so suspicious of the elevated price for LinkedIn.

    One more thing: in 2001, the The Industry Standard went bankrupt.

  • Was LinkedIn Screwed By Its Underwriters?
    , May 19th, 2011 at 11:09 am

    So with LinkedIn‘s ($LNKD) monster IPO surge this morning, we should ask if this means that they were let down by their underwriters. Bear in mind that the offering range was already raised by about 30% just before it was priced. If you price at $45 and the stock soars to $90 or so, that means the company left all the money on the table.

    Or maybe not. At Business Insider, Pascal-Emmanuel Gobry writes:

    In fact, it’s probably because they were AFRAID of having a pop that they upped the price early on to mop up demand.

    But here’s the thing. Along with designer handbags, stock is the only good where demand goes up with price.

    Economics 101 says that when demand for something limited is high, the price will go up, which will lower demand to match the supply. But that’s not how the stock market works, is it? When the price gets high, more people buy, and the price gets higher.

    Excitement about the LinkedIn IPO was always high but it started becoming feverish after LinkedIn’s underwriters bumped it up to 40. “There’s so much demand! It means it’s going to be a huge IPO!” Which, of course, became a self-fulfilling prophecy. A person close to big investors told us that they couldn’t even get shares in the IPO because it was so oversubscribed.

    There’s a frenzy because there’s a frenzy which in turn leads to a bigger frenzy. This is why I steer clear of most IPOs.

  • LinkedIn Soars
    , May 19th, 2011 at 10:11 am

    I haven’t written about the LinkedIn ($LNKD) IPO since, honestly, I don’t know much about these types of businesses. It’s rare for people who write about investments to confess their ignorance, so I may be breaking some sort of rule.

    Nevertheless, shares of LNKD were priced at $45 yesterday.

    The opening trade = $83. Bespoke notes that at this rate, LNKD will be bigger than 136 companies in the S&P 500.

    The stock has now gotten as high as $90. This means that a company worth $8.5 billion made a grand total of $15 million last year.