Silicon Valley Recovery and Aftermath of LinkedIn IPO

19th May, 2011 was a big day for LinkedIn and why wouldn’t it be? It was first in line up of social media companies to go public. Not only did they have their IPO but I think they capitalized big time on the hype and the economics of supply and demand. LinkedIn has been around since 2003 and one can comfortably say that perseverance paid off big and the timing couldn’t be better. It’s time to celebrate if you are an early LinkedIn investor and/or employee with stock options. Do I hear “Paper Millionaire?”

I majored in Accounting and I can talk about LinkedIn’s crazy first day triple digit percentage gain in stock price and give you all kinds of numbers that will indicate a bubble but I am not going to do that. In fact, no one can be certain of LinkedIn’s worth. Though, I will say this one thing that has been in my mind since yesterday. If LinkedIn were a regular business that had its IPO or even sale, no one would be willing to pay $8 Billion for a company with 2010 revenue of $243 Million and profit of around $15 Million.

Just to give you some perspective, let’s just go back in time and look at another internet behemoth (at that time) 8 years in to the business since inception.

Yahoo! had revenues of $1.63 Billion in 2003, compare that to LinkedIn’s $243 Million. Yahoo! stock traded at $45.03 at the end of 2003, compare that to LinkedIn’s $93.09 close on 5/20/2011. You might say that I am not doing apple to apple comparison here but do you see why people like Jim Cramer think that it is insane? Revenues don’t match the high price people are willing to pay for LinkedIn stock. That’s mind boggling to many in the financial community.

Wait, there is a silver lining

I live in Santa Clara and couldn’t be more thrilled that LinkedIn is right in my backyard i.e. Mountain View. Those “paper millionaires” will soon cash in after the initial 6 month wait required by law. I wouldn’t say Silicon Valley has been a big casualty of the housing bubble but the home prices did go down and foreclosures remain high in some areas of San Jose. Mostly because of high unemployment and lack of new jobs. I am sure that majority of LinkedIn employees live in and around Mountain View and that means the local economy will see a recovery, if not outright growth. Even a blip will be welcomed at this point. That’s a good news no matter what your view is about LinkedIn IPO.

No one knows if Facebook is next or Zynga but we all agree that they are all in line and waiting for their “AHA” moment. Sometime this year? Maybe early next year?

Dude, what about the Bubble?

Give common sense benefit of the doubt. eBay, Amazon, Yahoo! were all the result of a bubble and they are still around. The strongest social media companies will survive and LinkedIn has a business plan unlike most of the early startups of the .com era. There is definitely hype but there is some truth to the hype too.

By the way

Are we connected on LinkedIn? If not, let’s connect. Use the email zhlilani[at]gmail.com to initiate connection.