LinkedIn Shares Proven Overvalued As Investors Sell
It is ironic that we had LinkedIn’s (NYSE:LNKD) earnings last night just ahead of the frenzy that will be Groupon (GRPN) today. LinkedIn set the model on how to float a TINY amount of your shares in the IPO therefore causing a manipulation of the supply / demand dynamic. Anyone who took Econ 101 knows price is based on supply v demand – and if you supply the marketplace with a tiny amount of shares, the price will be artificially high. Groupon is following that tact with LESS than 5% of its shares to be available for trading….
Anyhow, not 6 months after IPO LinkedIn (NYSE:LNKD) is already coming back to the marketplace with a NEW share offering – a bit humorous if you ask me. Maybe if they had actually sold more shares in the IPO they wouldn’t need to be raising new money!! But with the above mentioned plot and massive valuation of >$8B, $100M (with potential of up to $500M) is a mere pittance I suppose.
As for earnings, LinkedIn fell back into the red after last month’s positive earnings. And if you exclude those nasty one time items (that happen each quarter but for some reason Wall Street tells us should be ignored as they are one time in nature) the company earned 6 cents. Like many companies of this ilk it is spending for revenue growth with the idea that profits come later. Revenue growth was very good but even if you annualize the $139M, to $556M – the price sales ratio is 15. (I won’t even bother with the traditional trailing price to sales ratio) Extreme – but it all goes back to that tiny float.
- Professional networking company LinkedIn posted quarterly results that beat estimates and raised its full-year outlook, but margin expectations and plans for a share offer drew scrutiny from investors.
- LinkedIn, which went public in May, said on Thursday that it expects to report adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the year of $83 million to $85 million on revenue of $508 million to $512 million. It had previously targeted a full-year adjusted EBITDA profit of $65 million to $70 million and revenue of $475 million to 485 million.
- The company, started in the living room of ex-PayPal executive Reid Hoffman in 2002 and launched in May 2003, also gave an outlook for the current quarter, which some analysts said was too cautious. “The results were good, other than fourth quarter EBITDA guidance seeming a little conservative,” Ken Sana of Evercore said.
- “Stock trading where it is, it has to be a perfect quarter,” Herman Leung of Susquehanna Financial Group said, adding that company margin expectations of 12.8 percent on average were somewhat below estimates of 13.4 percent.
- In addition, a proposal to sell up to $500 million in stock raised concerns that it would dilute company shares. LinkedIn said it wanted to raise capital for the company but also “facilitate an orderly distribution of shares.” A 180-day lock-up period — agreed to after its listing in May — prohibits employees and others from selling their stock. Come Nov. 21 the restrictions will be lifted, potentially resulting in a massive sell-off.
- LinkedIn’s third-quarter revenue rose 126 percent to $139.5 million, above Wall Street expectations of $127.6 million, according to Thomson Reuters I/B/E/S. Net loss was $1.6 million, or $0.02 per share, compared with a profit of $4.0 million a year earlier. Wall Street had expected a loss of $0.04.
- LinkedIn added 15.4 million more accounts in the quarter to end September with 131.2 million members.
- LinkedIn added 282 employees during the quarter to end September with nearly 1,800.
- The Mountain View, California-based company makes money by selling premium subscriptions to its members and by helping companies with hiring and marketing.
Trader Mark is the author of Fund My Mutual Fund.