LinkedIn Price – Am I Missing Something?

I don’t know about anybody else, but I have a hard time rationalizing LinkedIn’s price right now. I get that this is the first big social media company to the market, but the numbers I am about to discuss just don’t match with reality. LinkedIn closed the week with a price of $93.09. That is a 107% gain from the IPO price of $45 in just one week! Let’s just look at a few key numbers:

  • A total of 7.84 million shares were made public in the IPO. (The total number of shares outstanding listed in the SEC filing in March is 88,955,943)
  • The company had $15.4 million in net profit last year on $243 million in revenue

Using these numbers, LinkedIn is trading at 537x earnings. Now, let’s be extremely generous and say that LinkedIn has net income of $50 million in 2011. That would be 3.2x net income for 2010. If this were the case, LinkedIn would still be trading at 165x earnings. I don’t know about anybody else, but these numbers are crazy. No wonder everyone is talking about a bubble. I guess part of the reason for the huge increase in stock value is that no options were available and it was impossible to short shares last week. Options will be available in the week ahead and I expect that alone to bring the stock down considerably. Options will give traders a cheap way to bet against LinkedIn.

Can you imagine what a Facebook IPO would be like right now? Facebook could be a $150 billion company in a matter of days with trading like this.

What do you think? Would you consider buying LinkedIn stock? Do you see this a start of a new tech bubble?

Disclaimer: I have no current positions in LinkedIn.

Edwin C

Edwin is a marketer, social media influencer and head writer here at Money In The 20’s. He manages a large network of high quality finance blogs and social media accounts. You can connect with him via email here.

8 thoughts on “LinkedIn Price – Am I Missing Something?

  • May 22, 2011 at 12:50 pm
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    The small float is the reason that LinkedIn saw an insane pop at IPO. When you run a highly-publicized IPO after an uptick in retail investing activity (individual investors) but float only a small amount of total shares outstanding, supply and demand are a little twisted, and the stock price surges.

    I’m going to play options with LinkedIn. Going as far out as possible, I’ll be buying calls and puts at the same price to play a straddle for a volatility play. It makes sense to me–either LNKD is going way up, or way down, but it isn’t going to trade sideways, I know that.

    On Thursday, the options go up for trading. The first day will be nuts because all the OTC options sold before options go up will be arbitraged, hedged, or effectively closed with a new position. On Monday, I’m definitely going to evaluate a straddle play on LNKD, because I think there’s a stupid amount of money to be made on it. Waiting for Monday should mean that all the crazy money gets out, hedges, or shows that they’re interested in straddling it too for a volatility pure-play.

    Markets aside, I think LNKD is a piece of junk. They have very little that is unique, and I can’t see how they maintain an edge over Google and Facebook, both of which have the capacity to enter the recruiting space. Those valuations are exactly why I (normally) avoid technology entirely.

    Pricing in growth is hard, very, very, hard, so I look for value. I figure as long as I can get value, then I always get growth at a reasonable price. Just my super-long opinion. 😛

    Reply
    • May 22, 2011 at 1:26 pm
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      I’m a software developer and IT consultant so it’s my job to stay up to date with technology but for the same reason as you, I never invest in tech. This stuff is just pure craziness. I will not be participating in bubble 2.0. I only really invest for value over the long term, but from the sound of it, there is a lot I could learn to take advantage of weird situations like this in the short term. That’s for the insight. I’ll have to do some research 🙂

      Reply
    • May 23, 2011 at 4:21 pm
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      Thanks for sharing these great points, JT!

      I am little concerned with a straddle play just because of the stock price. I assume the options will be pretty expensive given the stock price. I might consider a strangle trade instead of a straddle trade as a cheaper alternative.

      Reply
      • May 24, 2011 at 1:11 pm
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        Strangle may be preferred depending on how they price on Thursday. Obviously, risk of loss is greater with a strangle, since you open up the opportunity of losing it all; however, I don’t think I’ve ever sold any number of options before expiration. I tend not to try to cut my losses, as it often makes little sense, given the cost of executing the trade.

        Upside in a strangle would be way better. I’m going to give it a look. I fear also that they’ll be both expensive due to the price of the security, and due to the implied volatility. No one has a clue on how to price this company, so it’s likely that a lot of other people are thinking about a straddle/strangle play.

        I think it’s far more likely to go lower than higher, but it’s hard to make sense of Mr. Market, and with options we’ll have only 12-18 months at max. Do post if you get in 😉

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  • May 22, 2011 at 2:23 pm
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    I never thought of making the options play but that is prob the best strategy right now. Yeah I’m expecting the price to be all over the place in the next few weeks.

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  • May 23, 2011 at 3:26 am
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    Man, these are the days I wish I understood Options more (at all) — I almost thought to myself I should buy some LinkedIn stock on Sharebuilder and then I realized that’s a very foolish thing to do, I’m better off investing that money in Apple or Amazon if I want to stay in tech, or, better yet, McDonalds if I want something more stable. If Amazon is worth $180 a share, how is LinkedIn worth $93?

    Reply
  • May 28, 2011 at 3:13 pm
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    Nice post. Don’t want to be a part of Bubble 2.0. You and JT seem very saavy with option plays. Good luck if you get in. Would love to see future posts on how it plays out as I am an options newbie.

    Reply
    • May 28, 2011 at 8:51 pm
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      Thanks for the comment. If I do make any option plays, I will be sure to write a post about it.

      Reply

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