Tech bubble 2.0
Any LinkedIn employees who got pre-IPO share options must be feeling pretty chuffed right now. The business social network had its initial public offering on the NYSE today, at a price of $45 per share. Within minutes they were trading at $90, and had maintained that price at time of writing.
This values the company at not far short of $9 billion, and with revenues of around $250 million last year, means the company is valued at around 36 times annual earnings. This kind of valuation is inevitably leading to talk of speculative bubbles.
Of course one bubble in particular comes to mind - the dotcom one of a decade or so ago, in which Internet companies that had yet to even make a profit were given massive valuations on the assumption they eventually would.
That's not quite the case with LinkedIn, of course a quarter of a billion is not just a decent amount of money, it's also double the previous year's revenue, so things are clearly moving in the right direction. But for a $9 billion valuation to be justified, LinkedIn would have to keep up that rate of growth for another few years yet.
If we are in the middle of a social media speculative bubble (Facebook is said to be valued in excess of $50 billion), LinkedIn is thought to be one of the more solid propositions thanks to its business focus. This ensures its users are professionals of some kind, thus making it appealing to advertisers. LinkedIn also makes good money from selling premium subscriptions and from selling solutions to recruiters.
But having said all that, linkedIn produced earnings per share of 17 cents last year, so the current price of $90 per share gives it a P/E of 530. Not even ARM has a P/E of over 100 these days, and a typical number is more like 15, so that looks like a pretty optimistic valuation to us.
