With LinkedIn (LNKD) trading around the $100 mark for almost two weeks now, tech darling opponents like myself are wondering how much longer until the next decline. The company has now proven itself as profitable, but at its current valuation, it suggests that one day LinkedIn will be reporting earnings per share over $6 which right now seems like a pipe dream. After seeing LinkedIn's most recent bull run, I looked to its largest publicly traded competitor and tech bubble predecessor, Monster Worldwide (MWW). Although it sounds unbelievable, Monster is actually much more overvalued than LinkedIn.
Monster Worldwide's shares are in freefall. The company's stock has dropped over 40 percent in the last year after three straight earnings misses. Earnings are supposed to rebound a little bit in the next few years with analysts expecting around 12 percent annual EPS growth, but with a P/E ratio over 22, there is plenty more room for a stock price correction.
LinkedIn is also very overvalued at its current price. However, the company has some very strong growth expectations going forward. Revenue is supposed to be around $1.3 billion in 2013 and earnings per share is expected to reach $1.09. The company is expected to leverage its network of users to expand on the job search platform and expand into new ventures that can prove to be profitable with its current position as the number one social networking site for business people.
Where LinkedIn beats Monster in the battle for being more accurately priced is in the strategy for its website. For those of you who are familiar with LinkedIn's site, please take a second to go to monster.com. The site is a lot less user friendly than LinkedIn and the search features already lag behind what LinkedIn has to offer. With shares down over 80 percent since 2006 and 2011 revenue down 22.6 percent from 2008's revenue mark (despite unemployment soaring), Monster is a company in decline with a valuation which resembles that of a company that is still growing. LinkedIn's market cap of $10.45 billion resembles that of Monster in its heyday, and LinkedIn has a much larger target audience: the entire work force as opposed to just the unemployed.
Currently, I put a Strong Sell recommendation on Monster Worldwide shares, and I would not be surprised by a 20 percent decline in stock price over the next year. I currently put a Hold recommendation on LinkedIn. I believe that LNKD is overvalued, but shares may continue to have bullish performance as next month's Facebook (FB) IPO approaches. I also think that LinkedIn will meet or exceed earnings expectations in the near future. In investing, it's important to apply lessons learned from the past. When making investment decisions about LinkedIn, a product of the social networking craze, investors should carefully study the history, of Monster Worldwide, LinkedIn's tech bubble predecessor. Over the next year or two, expect LinkedIn shares to come down to earth around the $60 to $70 range.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.