How about that LinkedIn? The social networking site jumped out of the gate yesterday at $45 and today rocketed to over $100. My guess is that more than few folks are and will continue to be impressed with that performance. Well, all I can say is, nothing changes as much as it remains the same.
Jumping into my “way-back machine,” I can travel back to the 1990s. Oh, yeh, those were the days of high-flying Internet companies. Yes, indeed, those were the days. Companies with cool names such as “Amazon” were commanding huge stock prices based on, well, nothing really. Amazon had yet to make a dime when it opened its doors for public consumption, and it continued on that path for some five years. Back then, I didn’t get it, and I said so. Apparently, looking at Amazon today, I suggest to you that had you jumped on that rocket back in 1990s, you would be nearing the edge of the Milky Way today. Clearly, I was wrong about my claim that Amazon would never make it because it had no profit and no real valuation …
Yes, I was wrong about Amazon, but the reality is that for every Amazon, at least a few blew up just after takeoff, and lots of people lost lots of money. The hype outweighed the ability to discern. Greed fed the voracious appetite of those who saw easy riches coming from the gateway to the future – the Internet. Yes, there were clear heads that saw through the hype, but they were ignored, just as they will be today as the latest “hula-hoop” hits the market. For those who don’t get that antiquated reference, the hula-hoop craze in the 1960s was the symbol of faddish behavior in marketing parlance. Anyway …
In today’s jittery environment, I would say touching LinkedIn above $25 is a big gamble. There are always reasons the stock could trade up and people could buy into the long-term story ignoring the next few quarters’ challenges.
LinkedIn is the first of the five “biggies” in the social-networking realm to go public. The company is now absurdly rich with a market cap exceeding some $10 billion (for the moment). We can expect that the others will follow and that they too will explode into space. Keep in mind, though, capitalism forces competition (mostly) and when it gets down to it, bottom lines will matter. One has to ask if the business models for these companies are workable over time, as competition for the advertising dollar is serious business.
The writer quoted above was clearly prudent when he wrote what he did the day before LinkedIn went public. Looking at the price action of LinkedIn today, his “warning” seems silly. If I could jump into a “way-forward machine,” we could know if he was silly or prescient. Only future time will tell, but keep in mind, past time tells as well, and the 1990s high-tech market is a story to remember.
Trade in the day; invest in your life.
Trade Ed
