LinkedIn IPO: Is It Worth Buying?
The Dynamic Wealth Report
May 5, 2011
by Jay Chernoff, Editor
It’s funny… Facebook isn’t even a public company yet. But already,
everyone’s searching for the “next” Facebook.
It should come as no surprise… Facebook is valued at over $70 billion
right now based on the trading of private shares. And that’s in very
limited trade. Imagine what will happen when the company IPOs!
While Facebook’s IPO will almost certainly be a success, it probably
won’t happen until sometime in 2012. So investors are instead searching
for companies with IPOs happening in the near future. In particular,
buyers can’t wait to get their hands on anything related to social
media.
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And that’s where LinkedIn comes in.
Like Facebook, LinkedIn is a social networking site. However, that’s
where most of the similarities end.
LinkedIn is a site geared to business professionals. It allows users to
take advantage of their business network to look for jobs, make
introductions, and participate in discussions.
Basically, LinkedIn is a business networking site.
LinkedIn has grown enormously popular since its inception in 2003.
The
site now has over 100 million members. For a business networking site,
that’s pretty amazing.
Facebook may have revolutionized the way we keep in touch with our
friends and family. But it looks like LinkedIn has done the same for our
business connections.
And that’s why LinkedIn’s IPO is getting so much attention.
If you haven’t yet heard, LinkedIn has filed for an IPO on the NYSE
sometime later this year. It could be the first of several high profile
tech IPOs to come.
Based on the price level of private shares, LinkedIn is valued at almost
$3 billion.
Here’s the interesting thing…
The company pulled in less than $250 million in revenue
in all of 2010. It sure seems like they have a long way to go to justify a $3 billion
valuation.
But just like Facebook, it’s all about the potential.
LinkedIn does have 100 million members. That’s a massive amount of
prospective paying customers. When you have a built in list of so many
people… well let’s just say there’s a lot of ways to earn money from 100
million people.
As a matter of fact, LinkedIn just reported their first quarter
revenues… and they’re seeing impressive growth. Sales climbed to $93.9
million. That’s a stellar 110% increase from the same period last year. So, it does appear the company is on the right track.
But, it’s not quite so straightforward…
Facebook can rely on ad revenue and online games to fuel their growth. Ads on Facebook have a much larger impact than ads on LinkedIn. Plus, Facebook games are exploding in popularity. Clearly, LinkedIn doesn’t
have the luxury of tapping into that market.
So how else can LinkedIn generate revenue?
In a nutshell… employment services.
You see, LinkedIn has become a major destination for those searching for
jobs. Member profiles are basically online resumes – so it’s really easy
to pass on your qualifications to a potential employer.
What’s more, it’s even easier for employers to search out ideal
candidates. And it’s not just about having so many online resumes to
choose from. There’s also the credibility factor. Depending on who you
have in your network, it can be very easy to confirm a candidate’s
background and qualifications.
So is all that enough to justify LinkedIn’s lofty valuation?
As a matter of fact, it might be.
Of course, there are no guarantees. There’s a lot of competition in the
employment services space. You have Monster Worldwide (MWW),
CareerBuilder, and several others.
But here’s the thing…
None of those competitors have the social media buzz surrounding
LinkedIn. And that buzz could go a long way toward attracting investors
to the IPO.
More importantly, there’s just so many ways to make money from a
membership base of 100 million people. I don’t see investors shying away
from such an explosive opportunity for growth.
The LinkedIn IPO hasn’t been officially scheduled yet, so keep an eye on
the IPO calendar. I don’t think you’ll want to miss this one. Investors
could be in for a fun ride.
One of the top losers this week in the ETF space is iShares Silver Trust
ETF (SLV). It’s down nearly 6% today and off nearly 19% over the past
week. SLV tracks the performance of silver by purchasing the physical
metal. Silver prices have pulled back after nearing record high levels.
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