Why LinkedIn Is a Scary Monster
Career site LinkedIn Corp. went public today at $45 a share, and giddy stock traders promptly bid up the price past $100 a share -- giving the overhyped stock a market cap above $10 billion.
At that market cap, investors paid the equivalent of about $98 for each of LinkedIn's 101 million registered users. So how much revenue did LinkedIn generate last year per user (based on average number of users)? $3.34 per user.
LinkedIn reported net income of $15.4 million in 2010 (when the company became profitable) on revenue of $243.1 million. The company today was trading at 650 times its 2010 earnings and 41 times last year's revenue.
This monster valuation seems eerily familiar: Back in the dot-com bubble of 2000, TMP Worldwide's Monster.com was all the rage. Investors happily paid north of $150 a share (before a stock split). TMP commanded an $8.4 billion market cap at its early 2000 peak.
TMP's early 2000 10-K boasted: "Through Monster.com, our clients have access to over 3.2 million unique resumes of which over 2.2 million are active, and our resume database is growing by an average of more than 10,000 resumes daily." TMP in 2000 made net income of $57 million on revenue of $1.3 billion.
But then came the stock market's monster crash.
Monster.com survived. Monster Worldwide (as the public company is known today) last year generated revenue of $914 million (nearly four times the revenue of LinkedIn), up from recessionary 2009 but well below the level of 2008 ($1.3 billion). Monster last year had a net loss of $32.4 million. Monster has a market cap of $1.9 billion, a fraction of its bubble-era peak.
Beware of monster valuations. They can be scary.