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LinkedIn IPO

Wednesday, May 18th, 2011

LinkedIn is opening its doors to public investment (and scrutiny) on Thursday.  Its IPO is the hot topic today. It increased the offering price range from $32-$35 to $42-$45. It’s rare to see a company increasing the IPO price range by $10! It shows the real hot demand for a piece of LinkedIn. If all these hype reminds you of dot-com bubble of 90s, you are not alone. Many people think like that. This could be another hype that could end badly.

LinkedIn earned $15.4 million last year; its revenue was $243 million. If it can fetch $45 price tag per share, the market valuation would be approximately $4+ billion. In that case, market cap will be 258 times greater than 2010 profit and 17 times greater than 2010 revenues. LinkedIn warns that revenue gain would slow down this year and a loss is possible.

I am going to stay away from this IPO if the stock is priced at $45. You will see a lot of day traders hiking up the price on Thursday. Institutional investors that got into LinkedIn early also would try everything possible to hike up the first day price so that they can make huge profits. Invariably, the stock price will come down.

When Google went ahead with IPO, its market value was 16 times higher than previous year’s revenue. Google had better business model than LinkedIn. The hype surrounding LinkedIn is that it is the “first U.S. social media company going for IPO”. It doesn’t matter whether this is the first social media company or third one. What matters is how much money you can make if you buy the stock at inflated price.

The company’s stock ticker will be LNKD in New York Stock Exchange.

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