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John Dvorak's Second Opinion
May 20, 2011, 3:30 p.m. EDT
By John C. Dvorak
BERKELEY, Calif. (MarketWatch) "” The ludicrous action from LinkedIn Corp.'s initial public offering shows that investors want more small-company IPOs. Any company that can manage to go public in the face of onerous Sarbanes-Oxley regulations should do well, since there are not enough of these things to satisfy the market's appetite.
Unfortunately, this pent-up demand will exacerbate the nuttiness and create a mini-bubble that could ruin the tech sector forever. This wouldn't be the case if there was a steady stream of IPOs rolling out all year.
Let me first acknowledge the naysayers, who will point out that my vision of the way things ought to be is exactly what resulted in the dot-com crash of 2000-01: You are wrong.
LinkedIn's bubble-icious deal was a treat for the company, its executives and investors. But the IPO also was welcome news for LinkedIn's would-be rivals. Digits take a look at the growing importance of the social graph to both established and wannabe job sites.
The fact is that we've always had a healthy IPO market, and in the late 1990s the emergence of the Internet as a force resulted in the kind of fever that in turn resulted in the dot-com boom and bust. I think we are over that by now; I hope so anyway.
But with few IPOs coming out and the constant demand for them, we will see the ridiculous situation we are witnessing with LinkedIn /quotes/comstock/13*!lnkd/quotes/nls/lnkd LNKD -1.23% .
Look, LinkedIn is a fine operation and a classic social-networking scheme. It's designed to create networks of people who can connect with others to help out the community as a whole.
On LinkedIn, I maintain a network of both people I know and people who know my work and want to be in my network. Yet I haven't found it useful for much more than keeping up with a few people I'd lose track of otherwise. Still, I think it would be very valuable for a job-hopper with skills. (Not me, apparently.)
To make money, the company offers some premium services that many of us could do without. LinkedIn's earnings last year were around $15 million. This would conservatively value the company at $150 million? Something like that in a real world.
But thanks to the mania and desire to own cool little companies, the market has capped the business at about $9 billion! This means the stock is a bit overpriced, I'd say.
If companies such as Skype, which virtually has no value, can be traded whole for $8.5 billion (which is how much Microsoft Corp. /quotes/comstock/15*!msft/quotes/nls/msft MSFT -0.91% bought the operation for), then who knows what anything is worth?
I'm not trading LinkedIn, except on a fantasy board. But if I were, I'd find a way to short this thing. I thought it was overpriced at $45; it's trading for close to $100 as this is written.
Paul Vigna discusses with the News Hub panel when the short sellers might come onto the scene.
Now the good news: The IPO is a success. That opens the door to other smaller companies that could use an influx of cash to grow and expand.
This is what's been missing from the tech sector over the past decade: public financing for small-growth companies to grow and prosper. While many (if not most) of these firms will fail, we will see the next Amazon.com Inc. /quotes/comstock/15*!amzn/quotes/nls/amzn AMZN -0.08% or Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog GOOG -1.36% from the group.
So I commend the LinkedIn folks for puling this off and cashing out. But I would have been happier if insanity did not ensue. Now every IPO will be judged on how fast it skyrockets.
The quick money will be attractive to too many investors, and the phenomenon will continue and a bubble (yes, I've said it again) will grow and inevitably pop. Fingers will be pointed and the money will dry up again.
"disgusting story of AZ SWAT team murdering US Marine @tylerglaze http://t.co/0suXslK how is this tolerated?" 2:56 p.m. EDT, May 17, 2011 from THErealDVORAK
"Interesting essay titled "Stifling Liberal Dissent Under Obama:" http://goo.gl/aRcis written by blackballed Liberal cartoonist Ted RALL" 2:48 p.m. EDT, May 17, 2011 from THErealDVORAK
"the end of the movie business as we know it: http://www.empireonline.com/images/image_index/hw800/51373.jpg" 3:50 p.m. EDT, May 16, 2011 from THErealDVORAK
"Interesting take on the legality of killing Bin Laden http://www.cbc.ca/video/news/audioplayer.html?clipid=1921021571" 2:11 p.m. EDT, May 13, 2011 from THErealDVORAK
"does anyone have the links to the email trail concerning Google and Facebook and the astroturf campaign. They are not where they should be." 10:24 a.m. EDT, May 13, 2011 from THErealDVORAK
John Dvorak writes John Dvorak's Second Opinion for MarketWatch, he's also a columnist for PC Magazine, Info! (Brazil) and BUG Magazine (Croatia). Dvorak does a weekly TV video podcast "Crankygeeks" as well as a daily tech podcast called "Tech5" and weekly podcasts "This Week in Tech" and "No Agenda" with Adam Curry as well as working as the Tech Channel VP at Podshow Inc. He's been featured on CNBC as a guest analyst. He has written for Forbes, Forbes Digital, PC World, Barron's, MacUser, PC/Computing, Smart Business and other magazines and newspapers. Dvorak has authored or co-authored 14 books. He was a 2004 Award winner of the American Business Editors Association's national gold award for best online column of 2003. That was followed up by an unprecedented second national gold award from the ABEA in 2005, again for the best online column (for 2004). He also won the Silver National Award for best magazine column in 2006.
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