By Jack Fuller
LinkedIn (NYSE:LNKD) shares have a total market value of $7.4 billion, with shares now trading at $77 after (talk about a coming out party). Is the stock really worth it?
LNKD is a company that works out of the social network and Internet information industries, boasting 1300 employees and 70 million members. LinkedIn's revenue comes from three different areas: hiring solutions, online advertising, and premium subscriptions. Two weeks ago, LNKD had its initial offering with an initial price of 93 dollars, and it has been falling ever since.
The concerns for LNKD are very straight forward: With highly tech dependent new companies, it is almost impossible to put a value on the company itself or its stock. LNKD currently has a price to earnings ratio that is sitting at an outrageous 490; and a price to earnings ratio this high is often a signal an overvalued stock or a bubble waiting to burst. With an entire industry of social networking exploding right now and sporting high stock prices, investors must be careful about getting trapped in LKND at the wrong time since the company has copious competitive risks from Facebook and other networking outfits nipping at its heels. In this light, LNKD shares represent a long-tail risk of outright failure given that it is subject to the vagaries of social networking coolness in markets like this short-term, but they are the ultimate in timing and risk for investors. Here is our countdown of things you could buy for the $7-8 billion price tag instead, but we would prefer you not to:
7) Four of the five most expensive sports teams in the world. Those teams include Manchester United ($1.86 billion), the Dallas Cowboys (1.65 billion), the New York Yankees ($1.6 billion), and your choice of either the Washington Redskins ($1.55 billion) or the New England Patriots ($1.36) billion. We actually think this one would be great fun; it just means you would probably run those teams into the ground, which no one would want.
6) You could have bought McAfee, the software maker known for its antivirus programs earlier this year. Intel (NASDAQ:INTC) left investors scratching their heads with the acquisition of McAfee in February, with Richard Stiennon from Forbes calling it the worst acquisition of a pure play security company ever. The acquisition didn't make much sense for Intel, but it may have made better sense for someone else. Pulling out some world history, maybe the Greeks could have used it to beat the Trojans. Hardy har.
5) Zynga is the social-network game firm valued at $7 billion based on a recent raising of capital. We're skeptical of Zynga's valuation, despite having 150 million active monthly players for Farmville and Cityville. Want to know if a golden cow has wandered on your property? This is the one for you. You'll have 1.8 billion left over.
4) Skype was acquired by Microsoft (NASDAQ:MSFT) for under our $8.8 billion budget. The firm was bought out for $8.5 billion – even though it posted a loss of $7 million last year. The $8.5 billion quoted is also a huge premium on the $3 - $4 billion expected in potential Facebook and Google (NASDAQ:GOOG) deals. While this may work out for Microsoft in the long run, we would have found another way to spend our money, especially given the price.
3) Twitter. Given a private-market valuation of about $7.5-8.0 billion based on $250 million in revenue for 2011, the social media firm is largely considered over-valued. Some analysts even estimate that the firm will make is little as $100 million in revenue, not the $250 million cited. Considering the firm's earnings, the valuation seems pretty shaky, especially since they don't have a real business model. There is a lot of talk about another dot-com bubble going around; Twitter's private valuation makes us fear for our online futures.
2) 15,000 Ipad 2's! (Wi-Fi only, of course). Apple (NASDAQ:AAPL) says the Ipad 2 will revolutionize our lives, so buying 15,000 of them should revolutionize it 15,000 times as much!… Or so we'd like to think. In reality, you're just going to have 14,999 nice looking paperweights lying around. They still may be a better value than LinkedIn though.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.