Editor’s note: This article was first published in May 2011 during LinkedIn’s first trading day on 19 May 2011; the $86 price and the 90% and 144% gains are intraday figures. LinkedIn was acquired by Microsoft in 2016.
Experts say that the popular professional networking site LinkedIn does not have a business model with proven sustainability for the future, and yet it was investors’ favourite stock today on Wall Street.
The IPO price was set at $45 per share, and LinkedIn rose more than 90% on its first day, to $86.
Warren Buffett has already said that the new «dot-com» companies were overvalued and that, sooner or later, the markets would put them in their place.
On the other hand, some analysts say this is not the same business model as the dot-coms of the 1990s: «The new technology and internet market is still very immature and will keep growing in the coming years. The internet is the future and the business model is changing. Investors need to be there.»
Those are words that frighten other investors, because they remind them of what was being said in the 1990s, before the dot-com bubble burst.
LinkedIn has been valued at $3 billion, although some now fear that, without a clear business model and with revenue coming only from premium subscriptions, the network may struggle to generate market value and pay dividends to shareholders.
Others point out that a social network of this kind, focused on professionals, is not free from competitors who could be snapping at its heels, not to mention that the internet world runs on fads, and what’s fashionable today may be forgotten in two months.
The most useful advice for an investor is to invest cautiously in this kind of company and with a short-term view, because in the long run, with the internet, it’s impossible to predict how things will turn out.
Update:
LinkedIn is now up 144% and Wall Street is still open, so it could keep rising. Any doubts that the stock market is the most profitable investment? 144% in just a few hours…
Further reading
- Warren Buffett’s investment advice
- Warren Buffett’s speech, in 9 videos
- What Arthur Rock analyzes before investing
Featured image: LPS.1, CC0 1.0, via Wikimedia Commons.
