BLOGNAME: LOUDER THAN WORDSAn informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur
|LinkedIn IPO Is A Total Speculative Play|
It's not investing if you are playing
By Paul Tomori
Friday, May 20, 2011 at 13:15:41 (EDT)
It's astounding to see how an unprofitable company like LinkedIn.com can go from a dreamed up valuation of about $30 / share all the way to almost $100 / share on the day of its IPO, May 19, 2011. It kind of reminds me of when Netscape went public and it smells a lot like the foreshadowing of another dotcom bubble. Remember when all that was needed to get a hot IPO was eyeballs and users? That kind of mentality led to the demise of so many cute, but not profitable, business models... most of which went belly-up about 10 years ago.
A lot of people who "play" the stock market lose a lot of money from their "playing". I can think of other means to have fun. The stock market is serious business, not a playground (unless you have money to burn and get a thrill from stock speculation).
With the number of shares outstanding at LinkedIn.com, the stock valuation is approximately equal to the number of users in their system. That means that buying the company is kind of like paying $100 / user. Yowsa. That's a lot of dough considering those users don't actually have to pay any recurring subscription fee to use the site. Once again, it seems like advertising will be the "monetization" model.
Google also started with the "eyeballs are king" mentality, but then they learned how to make big money through advertising. Yet, it wasn't til AFTER Google was profitable that they did their IPO. LinkedIn.com just sounds like a means for the company to get financing to be able to pay their bills... because their customer base doesn't yet do that job for them.
Some people call what Google did "learning to monetize". But, starting a business without monetization as a core principle and goal, is usually a death-sentence for the business. Monetization is just one of those fancy words used to dress-up the underlying concept: making dough!
Don't get me wrong. I wish LinkedIn great success and I hope that they can make it to profitability. But, I will not be investing in them anytime soon. The goal behind the current LinkedIn.com investor is just this: they hope that at some point, someone will pay them more for their shares. It's like the Gold craze going on in the last couple of years. Buying gold is a similarly speculative move whose buyer hopes that at some point they can cash out when some other speculator bids a higher price. Anyone who actually buys gold with the intent to hold on to it long-term is going to regret it I believe. The speculation house of cards always collapses at some point and you wouldn't want to be the one holding a dropping commodity.
Either way, I am going to watch what happens to see if I am right, but if history is any indication, then I will be validated sooner as opposed to later.
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