LinkedIn: How Long Will Rich Investors Stay Rich?

[MadMarketScientist 11]

From 24/7 Wallstreet ...

 

One of the lessons that was learned from the internet bubble of 1998 to 2000 is that many tech company founders woke up one day and found that they were billionaires on paper. By the end of 2001, most were out of work and their stock certificates were worthless. The founders of LinkedIn, the professional social network now have about $2.5 billion in stock among themselves after the company went public at $45 a share.

 

Most experts think this boom will be different from the one a decade ago.The primary reason is that so many investors were burned. The other is that apparently firms like LinkedIn have enough revenue so that they will not burn through the proceeds of their IPOs. That should cause the public to wonder why they need the money which comes from an IPO at all.

 

The argument for IPOs is that they allow early shareholders to eventually sell their stock for a return on their investments. Additionally, new public investors can become fabulously rich as owners of the newly issued shares. Of course, the original investors have the advantage that the first moneys into these operations receives their ownership at very low prices because these investors took all of the early risk. Whether that means that they should get returns that may be tenfold or better is an open question. These venture capitalists make the point that they supplied the money that made the existence of LinkedIn possible in the first place.

 

The trouble with an IPO process that allows early investors to cash out at huge multiples has always been the same. They sell their shares over time, which is not just a means to make a profit, but a core lack of faith in the futures of the companies they have financed. The new stock will not increase by a factor of ten as their first investment has. Early stock holders and management usually have a “lock-up” period when they cannot sell shares of an IPO, but these usually do not last longer than 120 days.

 

The tension between early investors and those who buy shares in an IPO exists because no original money believes that the future will be as good as the past. Caveat emptor, they may say, but better to exclaim that there is a sucker born every minute.

 

I am optimistic this time is different ... famous last words!

[SIUYA 11]

most expensive words in the English language - this time its different

 

As a mob of humans we dont generally learn lessons such as this as our memories are short....(soon it will be what GFC?)....not to say Linked in may not be a success over the long term. It might be one of the few exceptions. Its when people throw out ideas of traditional valuations based on cash flow, earnings etc that it becomes pie in the sky stuff.

 

Personally while economists actually like to think the stock market is a mechanism for raising capital ....yes it is, they often forget that it can very often also become a place of dumping assets with very high multiples. It then becomes a means of transferring wealth between the many to the few.

 

I too like linked in but it does not make it a great investment at certain prices.

[calsprdr 10]

How is LinkedIn going to make money? Their valuation is made up by Goldman or whoever is underwriting the IPO. Social networking is great, but it's been proven with other similar enterprises that the users won't pay; that leaves advertisers... yawn...

[iwshares 10]

Looking forward to shorting Linkedin, might as well get in early to maximise returns...

[BlowFish 10]

Back in the day it was great playing IPO's. When I heard that the stock price had doubled within minutes it brought back warm memories. It would be great if those days returned roll on the dot social network bubble!

[iwshares 10]

How is LinkedIn going to make money ...users won't pay; that leaves advertisers...

 

Yeah print media is collapsing due to struggle finding advertisers. The big companies are pumping money into advertising but there must come a point where they hit their limit. I have a mate with a successful social network analysis business (yes how crazy does that sound), I hope he flogs it and takes the cash before it folds...

[MadMarketScientist 11]

How is LinkedIn going to make money? Their valuation is made up by Goldman or whoever is underwriting the IPO. Social networking is great, but it's been proven with other similar enterprises that the users won't pay; that leaves advertisers... yawn...

 

The make money three ways: 1. advertising 2. premium subscriptions 3. hiring solutions. #3 is the most interesting part of the their business, essentially they are becoming head-hunting firm and taking on the likes of monster, etc. with that said, they are NOT worth the 1200x earnings! SHORT SHORT

 

MMS