LinkedIn Wants More Cash, Offers to Sell $1.15B Worth of Stock
allthingsd.comAt a P/E of 935, I would also sell all the shares I could.
I came here to say this. When the market places a crazy value on your stock price, it behooves you to take advantage if you really have a fiduciary duty to maximize shareholder value.
Same principle as buying up your shares on the cheap if the market beats them down unwisely.
So... why would it be a bad idea to short the stock now? Somebody talk me out of it before I make an expensive mistake.
This is why: the market can stay irrational longer than you can stay solvent.
https://duckduckgo.com/?q=The+market+can+stay+irrational+lon...
It can be very hard to time, and you have to pay dividends/interest while shorting. Lots of pain for people who shorted tech in 1998. Or financials in 2005. No limit to your downside.
Heh, I had the same idea and lost a bit (if I had a proper account I woulda made enough on the volatility but that's another issue). A year ago I'd have though that by late 2013 LNKD'd would have fallen.
Look what happened last month. P/E insane, stock at $200. LNKD releases decent numbers ("as expected, LNKD exceeded expectations"), and the market decides "yeah let's just keep that P/E at the same spot".
As someone else wrote, the market can stay irrational longer than you can stay solvent. Maybe if LNKD releases a "met expectations" or "missed by 1%" people will realise a 900+ PE is ridiculous and it'll tank.
Meanwhile, LNKD would be idiotic to not sell off some more shares.
You can consider buying a put option as a form of a short. The problem there is you need to deal with the likelihood of your option expiring worthless. But your downside becomes limited.
Shorting excellent companies that make lots of money is generally a bad idea.
Not really. Think about Facebook's stock IPO or Cisco during the .com boom. Also think about 1929. Excellent companies that make lots of money doesn't mean that they're under- or overvalued. A P/E (price/earnings) ratio of 900 means that the market is expecting Linkedin to be much, much more profitable than it is currently. For comparison, a normal-ish P/E is around 20. Linkedin doesn't have to simply sustain its level of profits, it has to grow, and grow extremely rapidly, just to justify the current price of the stock. So people buying the stock now think that Linkedin will eventually do even better than THAT. I disagree with those people.
It's not that Linkedin isn't an excellent company or isn't making lots of money, it's that it is overvalued in the market unless its profits somehow balloon. It's the same problem Facebook had with its stock IPO.
LNKD will eventually crash if it doesn't wildly exceed expectations. It's most likely a bubble.
They made $3.7M last quarter. That's not "lots of money" for a $32B market cap.
Those are gaap earnings which are of minor relevance for high growth companies prioritizing usage and revenue expansion. The company made $363 million in revenues last quarter.
OK so I'm not a finance guy at all, but can you explain what I'm not getting:
http://www.google.com/finance?q=NYSE%3ALNKD&fstype=ii
363M revenue. Minus a ton of things for operating income of 8M. Then tax brings it to 3.7M.
On what basis are we supposed to think LinkedIn is suddenly going to eliminate > $300M of quarterly costs?
If you do the "1 times revenue" (so about 1BN) that's still not close to being worth 32B.
I asked the same things when I was 18 in the dot-com boom and got hand-wavy responses and people talking about eyeballs and stuff. Why is this fundamentally different? I understand if it's too much to explain in a comment, but could you link to some introduction that explains why a company's costs should be ignored?
Also, why the stock would go up when they meet expectations? If you bought into the high P/E at $100 on the logic of "yeah the PE is high, but it's growing into it" then you'd expect the PE to lower as they meet their goals. Instead the PE stays around the same area and the stock goes up. That does not sound rational. Edit: Like, 1% profit margin, so even if they magically multiply that by 10 or 20 times, that'd still mean a PE in the hundreds.
A $1.5b run-rate on a product with $0 COGS and 60% growth after just 10 years in business is "making lots of money".
Keep telling yourself revenue matters without profits, and see if that lasts another 10 years. 60% growth after ten years but no profits? The only 'type' of company that is, is a loser. Some would argue even Amazon has an unsustainable formula and LinkedIn is no Amazon.
GAAP earnings == earnings in the context of the parent posts. Just because you slap a fancy acronym in front of the word "earnings" doesn't make it any different. However, revenue != profit. And, a 1% profit margin is pretty shitty friend.
gaap earnings are not the same as earnings and are frequently mis-leading for this type of company.
A small profit margin is almost devoid of meaning for a company not trying to generate profits.
Absolutely. When choosing between network effects vs. data, I will invest in a data company every time. Data seems to pay off in totally unforeseeable ways far into the future.
Take, for example, YouTube. Google paid $1.65bn for a company that didn't have a way to make money, but it generates massive amounts of human-labelled data. Now, a decade later, with Google's distributed artificial neural net, YouTube is granting Google sight. Google can see.
Yes, this is proof by anecdote - makes me cringe too. But bet on data. You can make lots of money.
In the case of LinkedIn, the company is both a network effect & data company.
I was thinking similar. It would take a LOT of earnings to come up with the cash that selling that equity would provide. (3-4 years of forward earnings, 30-40 of trailing, unclear on cash)
LinkedIn is doomed the moment real competition appears. People only use it while grimacing with disgust.
I agree, I think LinkedIn's value for network participants is very low. For someone trying to find information it is even lower. The one useful thing I see from it now is that it helps confirm someone's claim that they worked somewhere; through checking of people in their network.
However, things like promoting of skills, constant 'do you know ...' emails, and other meaningless profile building tasks that results in engagement with the website, appears to be little more than an exercise in cheap self promotion.
Perhaps I'm not the intended audience, but I find that marketing types tend to be the most active users on LinkedIn. What that says about the nature of the service, I'm not too sure at this point.
I can only agree. Specifically, their job recommendations repeatedly insisted (until I finally got around to muting them) that because I'd had a job in a particular city some years ago, clearly that made me an ideal match for positions in entirely different fields.
Seriously, if your company's raison d'etre is employment, and you're giving equivilancy to a long-ago location as to someone's actual field of expertise.. I'm, generously, hoping things improve.
For many people, jobhunting can be a soul-crushingly tedious, utterly unrewarding experience, and LinkedIn's seemingly unaware and uninterested, preferring self promotion with all the inerrant accuracy of AdWords.
I think it's a great product. I check it before every business meeting.
Were people not saying this about facebook once?
Why? I like it.
I'm curious about this as well. I don't use the site, but I see a lot of hate toward it (much of it seemingly unexplained).
This is a good example of why everyone who has any sense dislikes the company: http://community.linkedin.com/questions/8947/how-do-i-preven...
Long story short: They're slimy.
OK but once you're in already, and you aren't connecting your address book (hmm, what else are they going to do with it?) what sucks about LinkedIn so much relative to other social networks?
But it is the very definition of a network effect - I think competing with it is a hiding to nothing - I suspect that the best approach is to commoditise it - one of its plugins will become so popular that it essentially takes over simply using the LinkedIn API as a convenient backend
I'd be very careful to buy stock at LinkedIn. I'm not surprised there's high engagement as LinkedIn is full of dark patterns designed to drive engagement but this is bound to backfire sooner or later, many of which I'm sure you've all read about here already if not experienced. There are only so many frustrations users are willing to put up with.
All I can think of is walled gardens need upkeep
LinkedIn is the most amazing business node graph out there - for a professional person online it has everybody and uptodate. But there is a wafer thin business model if they played their hand brilliantly - and they play it like a drunk Captain Hook trying second dealing in Vegas.
I just hope that when / if it all collapses we can club together and transfer out the edge connections.
Don't they have a more cohesive and profitable business model than Facebook?
Even Facebook has a better model as their P/E ratio is only 200 or so.
Saying the value of a biz model is inversely proportional to P/E is ridiculous.
Surely not - P/E ratio is a guess at future profits factored in now. If a company is demonstrating real profits now and so has a viable business model, it will be easier to guess (project?) future profit and so P/E ratio will lower
I suspect this only works for P/E ratios above one order of magnitude - when dealing with companies that obey laws of gravity other factors come in to play (I mean seriously 900x earnings. That's insane).
So you're agreeing with me. I'm arguing it has minimal correlation. If high P/E = future profits, the model is useful. Low P/E (if they are making a healthy profit) = the model is useful.
It's the edge case of low P/E and low profits that indicates a non-valuable biz model.
Can you explain what you mean? It's not obvious to me from my perspective.
If you build a closed ecosystem, you and you alone are responsible for its value. As with other forms of leverage, you win on the upside, but there's also a lot to lose going down. LinkedIn is a closed, walled garden. It's gotten increasingly obnoxious (enough so that I've pared my legitimate profile down to its bare bones, and have a spoof one I use for research). And, well, we've seen any number of walled gardens implode spectacularly.
Logged into MySpace recently?
Could linkedin use it's data for nefarious purposes? Yes.
Could some professionals ask to be compensated for being on the network? Yes.
Have the professionals on linkedin realized the above? No.
Many professionals are compensated for being on LinkedIn - just not by LinkedIn direct !
Oh and I consider the spam I have to wade through to use it a nefarious purpose :-)
Does this dilute existing LinkedIn shareholders?
Yes. According to the prospectus[1] 4,165,972 shares new shares are being issues raising the outstanding Class A shares to 97,732,877.
This is part of the reason there was a bit of a sell off after the announcement.
[1] http://www.sec.gov/Archives/edgar/data/1271024/0001047469130...
Mathematically, their price should go down exactly (due to this announcement) (1 - Old # of outstanding shares / New # of outstanding shares)%
Only if you think the money they're getting for selling the stock is worthless...
Oy vey, I knew I was doing something wrong, I was just too focused on the math :)
Stop giving them your money. Let them collapse like capitalism intends.