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.