LinkedIn: ROI quo vadis?

On the continuing path to the next internet bubble, last week saw LinkedIn’s float live up to the hype, even though shares dipped on profit-taking last Friday.

Not long ago, Microsoft took over Skype at a horrendous price that raised some questions I outlined here:

Microsoft’s Skype deal – costs and benefits, ROI, why they’re taking over

In particular, I wonder if Microsoft’s move was smart or desperate, since it might never recover its investment.

LinkedIn: ROI quo vadis

Remember how much AOL invested in the Bebo takeover? Then they turned around and sold the company for a song in June 2010…

How to burn your investment with social media engagement – AOL and Bebo

We have previously pointed out that social networks are profitable to founders who raise a lot of money, but rarely – if ever – to shareholders.

Silicon Valley’s motto is URL – Ubiquity first, Revenue Later.

LinkedIn, which allows registered users to build and maintain a network of professional contacts, had about five million users signed up in March 2006 and recently hit 100 million. The first 100,000 of those got a thank-you email from the company:

Reid Hoffman at LinkedIn – Urs E., thank you for being among LinkedIn’s first 100,000 members!

In early May the company set the price range for its initial public offering (IPO) between US$32 and US$35 per share, which would have raised about US$271 million.

But last week, LinkedIn’s IPO lived up to the hype with a price of US$45 a share, thereby raising US$351 million, before shares soared 173 percent to a value of over US$11.6 billion. Prices have since dropped, but not much.

Bottom line
With the biggest tech IPO since Google in 2004 and the doubling in price of LinkedIn’s flotation shares within a span 24 hours, we clearly seem to be in the midst of a new technology craze. LinkedIn has about 100 million users and turned a profit of US$15.4 million on revenues of US$243 million in 2010.

Chinese social media firm Renren had an equally frenzied debut when it raised US$743 million earlier this month on the New York Stock Exchange. However, late last week its shares dropped below their initial price of US$14.

I think if I had LinkedIn shares I would be partying all weekend. If the public thinks this is what the company is worth, it is, right?

What do you think about this?

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Tagged as: AOL, Bebo, build social capital, Facebook, initial public offering, LinkedIn, ROI, shareholder value, social capital, social media measurement, social networking, why benchmark, Xing

Pingback: By @ShigoCreatives
http://twitter.com/adwyce/status/72459443761197056 Adwyce

LinkedIn: ROI quo vadis? http://bit.ly/m1MdfG
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http://twitter.com/lmikegarnett/status/72467798399516672 Mike Garnett

LinkedIn: ROI quo vadis? http://bit.ly/kBHTCJ
http://twitter.com/gunnertech/status/72467807480184832 Gunner Technology

LinkedIn: ROI quo vadis? http://bit.ly/kdxOp9 #socialmedia
http://twitter.com/alltop_social/status/72467811867426816 Alltop Social Media

LinkedIn: ROI quo vadis? http://bit.ly/lO6FMN Social-Media.alltop
http://twitter.com/birdbathbuzz/status/72488351181180928 Chris Isaac

LinkedIn: ROI quo vadis? http://ow.ly/1cOrvE
http://commetrics.drkpi.ch/articles/2011-trends-get-better-roi-with-facebook-twitter-and-youtube/ Urs E. Gattiker

Dear Urs

I like this post of yours particularly the links you have to other material in your Xing group on Social Media Monitoring – super.

I agree, if shareholders are willing to pay such a high valuation, the company must be worth it. At least in principle.
Nevertheless, I think LinkedIn, whilst successful, will likely not be able to pay investors back in any sort of way by paying out a decent quarterly dividend.

If we move into a recession again because of the Euro crisis and/or the US government debt (or we get something like 8% inflation again), these shares might be worth less than the paper they are written on.
Roberto

Dear Urs

I like this post of yours particularly the links you have to other material in your Xing group on Social Media Monitoring – super.

I agree, if shareholders are willing to pay such a high valuation, the company must be worth it. At least in principle.
Nevertheless, I think LinkedIn, whilst successful, will likely not be able to pay investors back in any sort of way by paying out a decent quarterly dividend.

If we move into a recession again because of the Euro crisis and/or the US government debt (or we get something like 8% inflation again), these shares might be worth less than the paper they are written on.
- http://commetrics.drkpi.ch/articles/2011-trends-get-better-roi-with-facebook-twitter-and-youtube/ Urs E. Gattiker
  
  Thanks for this feedback Roberto
  
  We will see …. if the US mortgage crisis or the Euro trouble with Greece and other countries might change things.
  
  Let us just hope it will not end in another crash.
Cecilia

Yes, very interesting phenomenon, isn’t it?

Urs, as you stated in your blog. If you had LinkedIn shares, you would have had partying the whole weekend. I love that too…
Investment is very different than other type of work. We have to have that kind of mind-set in order to be in investment. Many times we have to take risk in order to get return. Sometimes, too logical or analytical won’t get us lots of things in life, especially return of our money or love?

When I was in graduate school, my professor in my finance class calculated that the worst or most risky investment in California was Real Estate(housing), it was12 years ago. And a few very academically intelligent friends who are from Ivy league schools including Stanford university also claimed that the housing in San Francisco bayarea was bubbled, not worth their money to buy or invest. However, the past 12, 13 years in San Francisco bayarea almost all real estate appreciated 100% to 200% or more.

Sure it all depends on exact location as well) All these super intellectual people lost many chances, not catching the waves not making money out of it. However, their jobs were not in investment industries. Therefore, it was not their faults predicting what might or might not happen.

There are many control, uncontrollable or hidden issues when it comes to investment, or the value of companies. I am not part of the team who do mathematical analysis (or whatever methods) for financial/investment companies. I loved and still love investment, wanted to be a stock broker when I was a student, but now I am a investor, investing the good ones.

Going back to “the bubbles” If we can catch the bubbles, and before they burst, then, we all can party many more years. (personally know some people made many millions from these bubbles at young age) Life is good, is’t it?! best wishes, Cecilia-
- http://commetrics.drkpi.ch/articles/2011-trends-get-better-roi-with-facebook-twitter-and-youtube/ Urs E. Gattiker
  
  Cecilia
  
  Thanks so much for this thoughtful comment. I think the LinkedIn bubble is part of the social network IPOs (see also Facebook) that might be overvalued but may not affect other industries.
  
  Incidentally, the restrictions short selling of LinkedIn stock was lifted on
  Tuesday this week. A short sale involves borrowing stock and
  selling it, in the hope that the price falls and it can be bought
  back more cheaply – generating a profit.
  
  Two things make this very interesting:
  
  1 – The social network business tends towards monopoly. People want
  to use the most popular social network, though there is scope for
  related niche applications like Xing being dominant in Germany,
  Turkey and some other countries.
  
  2 – Recent social network IPOs including the LinkedIn one have
  granted minimal voting rights to new shareholders. Investors pretty
  much purchasing junk equity, just as they did with the Blackstone
  IPO
  
  What might prevent LinkedIn shares from loosing value by having its
  stock targeted by short sellers is that it has a small float. Just
  10% – 9m shares – were sold during its initial public offering.
  Hence, it might be too costly to put on a short.
  
  Let us wait and see.
- http://commetrics.drkpi.ch/articles/2011-trends-get-better-roi-with-facebook-twitter-and-youtube/ Urs E. Gattiker
  
  Thanks so much
  
  I replied, of course…. close the deal pls.
  
  Urs
http://twitter.com/describe4x/status/74957565464813569 Sharon

LinkedIn: ROI quo vadis? http://bit.ly/lO6FMN Social-Media.alltop
http://twitter.com/devseo/status/77114391283236865 Alex Hall

#socialmedia LinkedIn: ROI quo vadis? – http://su.pr/28k2S6

LinkedIn: ROI quo vadis?

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