Friday, May 20, 2011

Quotes of the day: LinkedInsanity installment

Today 150 years ago North Carolina seceded from the Union. North Carolina was the last to go. In February they had voted against secession, but after Lincoln's call for troops they reconsidered.--Joshua Horn

Don't get me wrong: economies of scale are great stuff. But the corporate relationship with economies of scale is too often like a fourteen year old boy's relationship with cologne, or a hipster's relationship with hot sauce: if a dash is delightful, five dashes must be utter heaven. They end up trying to put the damn stuff on everything.--Megan McArdle

... a 100 percent rise is evidence that LinkedIn’s shares were wildly, almost fraudulently, underpriced. The bankers either had no clue about the price people are willing to pay for the shares—or they decided to grant their best institutional investment clients a bonanza at the expense of LinkedIn. In either case, LinkedIn gave up $350 million for this mispricing. Let’s use a simply analogy adapted from my old boss, Henry Blodget. This is as if the trusted real-estate agent you hired to sell your house persuaded you to sell it to her best client for $1,000,000. This is the best price she can get you, the agent says. But the very next morning, the person who bought your house immediately turns around and sold it for $2,000,000. And, of course, the very same agent helps her sell the house. Would you suspect that the agent was really working for the guy who flipped your house for a 100 percent gain? Of course you would.--John Carney

With sales of $243 million last year, LinkedIn has a price-to-sales ratio of about 40x (find data in SEC docs here). Facebook is estimated to have had sales of $2 billion last year. So a similar 40x ratio would suggest a market capitalization of just over $80 billion. A slightly less elevated way to get at a market capitalization is to look at a per-user comparison. LinkedIn has more than 100 million users, and therefore a value-per-user of about $98. Apply this metric to Facebook, with more than 500 million users, and the company’s value comes to $49 billion. Obviously these estimates are guesstimates. When Facebook begins to trade, anything could happen.--Mark Boslet

I don't think LinkedIn is worth $10 billion. But then again, I thought Google was a good short at $300.--Cav

If Apple were trading at the same multiple, it would have a market value of $2.7 trillion.--Shira Ovide
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