The big news today was LinkedIn going public and shares soaring up 120% and counting from the opening. There is not very much extensive public financial data about LinkedIn and its performance except for form S-1/A (http://goo.gl/MpIlN) registered with the SEC.
The valuation that analysts had placed upon the company was circa $4.5B....$4.5B?
At an IPO price of about $43.50 coinciding with a tangible book value of only about $3.38, it becomes clear that the LNKD is likely already overvalued.
The company had just posted its first profitable year making $15.385M, but with a 4.3B valuation (now even higher as shares have soared), there is not a fundamental basis at all for LNKD. Also important is that this profit came on revenues of $243,099M which is a very low profit margin of 8.05%. From a cash flow basis, in 2010 LNKD generated $54,353,000 in operating cash flows. On a YOY basis cash flow from operations grew 133% and 154% which is definitely a strong signal for the company, but still not enough to justify the valuation.
Furthermore, even looking beyond the basic financials of LNKD, there is one big glaring problem that I do not believe has seriously been addressed...competition.
As far as I know, there is nothing proprietary in creating a social network for professionals and charging a monthly fee for various premium services. I honestly wonder whether LNKD has truly captivated its users in the same way Facebook has. What's to stop Facebook from developing its own professional network service which would likely be free of charge and with a much bigger user base?
The hype will carry the shares, but eventually the fundamentals (or lackthereof) will catch up to the stock. If you're a trader, dive right in.
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