A post not about LinkedIn | FT Alphaville

A post not about LinkedIn

Just kidding. (This is getting a little too postmodern – Ed.) ((You’re telling me – Ed.))

Here’s something we wrote in December of last year:

At this time in 2009, analysts were waxing optimistic that internet IPOs would boom this year, and a lot of the big names were thrown around as potential listings — Facebook, Zynga, Skype, LinkedIn.

So when you read that there’s been pent-up investor demand for access to the social media space, keep in mind that it’s been, err, penting up for a long time now. And LinkedIn was first out of the gate, as far as companies that matter.

(Yes, RenRen aka “The Chinese Facebook” listed American Depositary Shares on the NYSE last week, making it the first social media company on Rencap’s shadow backlog to start trading publicly. But as we wrote last week, RenRen has a number of unique problems, and its association with other recently listed Chinese internet companies — whose shares have impressively underperformed other post-IPO companies after the first day of trading — makes it a different proposition.)

This seems like the better way to think about LinkedIn’s outrageous valuation — remember, we thought it looked a bit rich when it was targeting a $35/share opening — rather than looking at the broader, more nebulous issue of whether we’re in the early stages of another dotcomedy bubble, a question we won’t try to answer. (For the record, we don’t know, though the possibility makes us nervous).

But the rest of this post is for those of you who are biding your time and want to do some homework before entering our LinkedIn valuation challenge. We’re simply going to point you towards and comment on some of our favourites from the flurry of commentary about the company in the last couple of days.


Paul Kedrosky writes that the game done changed:

3. Every venture investor I know has changed his plans with respect to taking social-media portfolio companies public. Everyone is thinking … Let’s get everything we have out, like, tomorrow. …

5. The tech/investing/IPO world just changed. Anyone who says otherwise has no idea what he’s talking about.

6. California’s prospective state finances just improved dramatically. As I’ve written before, the state is hugely leveraged to equity gains, and we are about to see prodigious numbers as a rush of companies follow LinkedIn in.

Henry Blodgett writes that professional investors know something denied to the rest of us:

The professional investors who scarfed up LinkedIn shares think they know something about the company that the pundits don’t: Namely, that LinkedIn will do much, much better than the pundits think. …

So, we can conclude that professional investors think that these estimates are absurdly low and that LinkedIn will do much, much better. And if the professional investors are right, they will get the added benefit of having LinkedIn “beat expectations” every quarter and having analysts “raise estimates” every quarter, even though LinkedIn isn’t actually beating expectations and analysts aren’t actually raising estimates. And the financial media loves to write and talk about companies that “beat expectations,” so this will ensure that LinkedIn is spoken about frequently and favorably in the media, which will help the stock and make investors feel smart and make employees rich and proud, and so forth.

Justin Lahart thinks the IPO will have beneficial effects on the economy:

Successful IPOs like LinkedIn’s get more people interested in investing in start-ups, boosting angel and venture-capital coffers. They also free up money: VCs that were in LinkedIn can put the money into earlier stage, angel-funded companies, and then the angels can put money into garage-level start-ups. The whole process got out of hand in the late 1990s, of course, but a little touch of the old dot-com fever might not be such a bad thing for the economy right now.

Ryan Tate worries that the effects of the day’s trading will be problematic for retail investors:

Until now, the nutso nosebeed overvaluations of companies like Twitter and Facebook were problems only for the wealthy investors able to get a piece of the privately held startups, and perhaps for the occasional pension fund . Now that LinkedIn has become “NYSE: LNKD,” it’s a problem that will be shared by mutual funds shareholders, individual public stock investors and, potentially, anyone depending on the good fortune of said equity holders. Welcome to the beginnings of systemic risk.

Dan Primack has the right closing thoughts:

One counter-argument [to the argument that we’re in a bubble] out there is that, until RenRen and LinkedIn, the expanded valuations were not being driven by Joe Investor. For example, Sarah Lacy wrote yesterday:

“As most people with common sense have argued, we’re not in an Internet bubble now, because the soaring valuations are mostly contained within the frothy insider ecosystem.”

I’m not quite sure why that matters. Are bubbles now defined by breadth of consequence? If millions of retail investors don’t get burned, does that mean there was no fire? Moreover, isn’t much of that frothy insider ecosystem (i.e., VCs) actually funded by teacher pension funds and the like?

Again, none of this means people won’t make great money off of these companies. Hell, people made great money off of investments in 1996-1998. But the one thing we’ve learned through all booms and busts is that there always are booms and busts. Cycles persist, even if some of them less nauseating than others…

Related links:
Here comes RenRen – FT Alphaville
LinkedIn files – FT Alphaville
Something familiar about this IPO preview – FT Alphaville