LinkedIn

LinkedIn was the hot IPO for the last 6 months.  That was the talk of the lackluster IPO market this summer due to tons of volatility and many debt default fears in Europe as well on our own soil.  On Friday, LinkedIn became the little step brother as Groupon stepped up to the IPO market with a bang!  The copany priced 25% above what it expected to just days earlier and then jumped 30% during the trading day.  Overall, it was a very successful IPO for the company.  This as well was very similar to the pattern that LinkedIn had on its IPO.  The company had a monster day, hitting its high in the $120′s and it has never gotten close to that number since.

LinkedIn Earnings

What makes the Groupon IPO worse for LinkedIn is that it reported its quarterly earnings just the day before Groupon’s IPO.  Its earnings were not very good.  The company went back into the red after a very upbeat previous quarter.  However, the loss it reported for the quarter was 2 pennies better than analysts expectations.  LinkedIn also beat on its top line so fundamentally, the quarter was better than expectations.  Investors still did not like it though as it wants to see it not losing money.  What made the earnings announcement even worse for the company was the fact that management said they plan on diluting shares and raising another $500 million in a secondary offering.  This sent shares down over 5% on Friday.  The company is still growing its top line as we speak as it is adding 15.4 million new subscribers in the last quarter which is very good.  They did not disclose how many were premium subscribers as that is how it makes its money. 

LinkedIn Valuation

Even with this growth, I think the company’s valuations are extremely high and it still has 25-35% of downside before it is priced properly in my opinion.  I just do not feel that LinkedIn has the future growth potential that is priced in right now.  The company has a unique business model, where I too use the service, but I do not think the business model will work in the long term.  Next year could be a trying year for LinkedIn as there is a Facebook IPO being rumored, and I just do not see why Facebook would not try to move into this space.  It would be an easy market to penetrate and most likely already has near all of LinkedIn’s customers as its own. 

So I am going to look for an entry point on the short side of this trade.  I think we could have a bounce in the markets tomorrow due to the vote between the Greek political parties that have agreed to take the EU deal to not default.  I think LinkedIn could get a nice 5% bounce tomorrow and if it does I will take that as my entry point on the short side.  Like I said, my valuations are much lower on this company and feel I can ride this down to the 60′s before I will cover.

Now even if we short this name tomorrow if it gets up close to $90 a share again, I still think the markets have higher to go.  Tech and Energy are on fire right now and think it could continue through at least the end of the year.  We love the onshore shale drillers Chesapeake, Southwestern, Core Labs, EOG and others.  Some of the big oil names are quite attractive right now with big dividends.  These names will have less volatility but also less upside.  However it is nice to have some juicy dividends to help you sleep at night.  These names are BP, Conoco, and Total.  In tech, the names tied to mobile internet are my favorites.  Google is still my best of breed company with a huge long term growth prospect in my opinion.  I still think this stock could double again within 2 years.  I know that is quite aggressive, but I just love what Larry Page is doing.  Akamai, Skyworks Solutions, Ciena, Cirrus Logic, Qualcomm and others are still some of my absolute favorites for reasons I have written about recently (Techniology Bull Market).  Overall, I think the markets are headed higher, but after hearing the LinkedIn quarter, I think it will be a short and trail the market averages.

Cheers,

Vinny

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