One week later, my 13 shares of the Facebook (NASDAQ:FB) IPO are down about 13% from the IPO price of $38/share. Lucky me. One year later, the shares of the LinkedIn (NYSE:LNKD) IPO are trading at over double the IPO price.
That said, there is a difference between the business models of both companies. Facebook needs to rely solely on advertising and commissions from in-game payments from companies like Zynga (NASDAQ:ZNGA). LinkedIn, on the other hand, has paying-subscribers in the form of job seekers and recruiters. LinkedIn knows what its business model is and where its revenue comes from. Facebook, on the other hand, seems unsure how to grow revenue or monetize users further, especially on mobile devices.
I compared Facebook to Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) in terms of valuation and came to the conclusion that the Facebook IPO is going nowhere short term and medium term. Facebook can, however, grow to the valuation of Google if it does things right, unlike the historical precedent. But then, the badly botched IPO doesn't inspire confidence that this will happen, although I have very little skin in the game and the market is fickle.
Let me explain by getting back to LinkedIn. Even though the company is arguably better run than Facebook, does it really deserve a PE of over 675? Does any company deserve that kind of valuation? Even at that stupidly high valuation, some analyst has the gall to call it a screaming buy. That is the insanity of the market. Not only that, according to Yahoo Finance, the average target price for LinkedIn is $128 (30% more than it is now).
So I'm avoiding LinkedIn and hanging onto Facebook. If Facebook keeps falling and goes down to $15, I might consider adding some more.