LinkedIn IPO: Underpriced, or tulipomania in action?

Source: REUTERS/Mike Sega

LinkedIn's IPO today shot sky-high today, bringing back memories of good tech times from times past (1999, where are you?). Naturally, it also brought out the cynics! The Wall Street Journal's Deal Journal blog's headline put it most starkly -- "LinkedIn Now Valued at 521 Times Profits" -- and one of the commenters, TexEcon, took the bait:

We’re all out of tulips. How about some LinkedIn shares?

But if the staid readers of the Journal are quick to cry tulipomania, the eager entrepreneur-nerds of YCombiantor's Hacker News are willing to crunch some numbers to put a more positive spin on things. nikcub puts it like this:

PE ratios are for yield businesses that have been around for decades and with nowhere much to go.

With LNKD you should be looking at revenue, competition and market penetration (rev is doubling yoy, three sources, 4500 business customers paying avg. $23k a year, 75% of fortune 100, 60% USA - which means they have a lot of growing to do). They are spending everything that comes in on product development, sales and marketing and R&D - it is all growth phase. $400M revenue this year.

To add - LinkedIn isn't really a 'social' company either since its revenue is not based on ads. They are in the recruitment market, where companies are known to pay tens of thousands of dollars for recruitment leads. And in that regard, they still aren't even exploiting their position as much as they could be (which means they have a lot of room to grow both out and up).

If they wanted to impress skeptics they could cut back all sales and marketing and development and just bank the 450M and pay out a dividend, in which case it would be a market cap of ~$4B, and a lot more love in comment threads on the internet :)

Over at Business Insider, Henry Blodget thinks that the big bump meant that the initial price was too low, and that essentially the banks have screwed LinkedIn out of money, seeing as that skyrocketing stock price in the short term benefitted secondary investors. (Based on Blodget's checkered career, this led to a commenter TBH snarking that "And this is coming from someone who knows how to screw people over.")

What do you think? Is the LinkedIn IPO a sign of madness, of health returning to the industry, or just another big-money transaction you don't get to be a part of?

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