A MySpace Caliber Disappointment Could be in Store Here
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The unnerving volatility of the technology industry has been known to ruthlessly slash the stock prices of seemingly well established companies, as someone like say Netflix (NASDAQ: NFLX) could surely attest to, after they got slapped around by the market and scattered back to the drawing boards. They were positioned perfectly to become a staple in home entertainment, but went up in flames as the result of confidence turned arrogance at the consumer's expense. Now as they will attempt to regroup, studs like Apple and Amazon are quickly trying to completely erase them with similar services of their own. There just always seems to be another shining competitive idea or murky statement of skepticism moving in to complicate things or inflict irrelevance onto the tech company that was soaring just the other day; the nature of this industry, more often than not, does not sympathize with companies working towards establishing their niche. The majority of tech companies have been subjected to this type of treatment at some point in their existence, but one has continued to scoff at it for months on end now. LinkedIn (NYSE: LNKD) has been the beneficiary of a steeply upward sloping value since January, however myself and about 87 percent of our savvy CAPS players on the stock have a feeling that this bubble is, and has been, ready to burst.
Even the bulls of LinkedIn haven’t been able to keep a straight face about its price tag lately as it has been steadily trading slightly above $100 and is accompanied by a preposterous P/E of 985.91, but none of the financials are weighing in on this valuation, obviously. The bull case for this stock seems to revolve around a long term faith in their domination of the professional networking niche and the assumption that their participating enterprises and professionals will be willing to invest and stay invested in their proprietary employment tools. In their annual filing, LinkedIn issues a perceivably apprehensive acknowledgement of the significant competition facing them by the already established companies(i.e Facebook, Google) and even the ease of emergence and acceptance of smaller companies, which doesn't bode well for confident dominance. Quite frankly, I'm not sure that any company would want to find themselves in competition with those types of powerhouses.
Despite the volumes that my cob web covered LinkedIn profile might speak, I do like the idea of their services, but I’m also not sure that they deliver as advertised. Through experience and observance of my own, cronyism is alive and well in corporate America and LinkedIn won’t be the remedy. The prestigious white collar work or advancement that every business oriented individual hopes to attain through this type of networking is not often decided on the basis of an online profile with an attached resume, which emits dubiousness in the actual worth of their subscription services. Besides, a simple Facebook search could give one a solid idea about an individual anyway, right?
While we’re on that note, we certainly can’t forget about Facebook’s potential cannibalization of this company, especially after receiving the funding from their colossal IPO that's right around the corner. It’s already been rumored that the social media giant will be implementing subscription services into their business, so why not open a special tab for the business professionals who are already visiting on the regular? What’s more is that Facebook is apparently saving lives now too, with its new organ transplant tool of course, so I don’t think there’s much that they aren’t capable of doing at this point.
LinkedIn just doesn’t provide much, if any justification for their current price tag and the consensus surely hasn’t been shy in voicing that, but only to be silenced by a continuous climb. A short term crash seems to be overdue and inevitable at this point; shoot, even the long term speculation of this company remains questionable and certainly doesn't warrant fiddling with an entrance at this price. LinkedIn seems like a groundbreaking idea on the first take, but hey, so did Pandora(NYSE: P) and Groupon(NASDAQ: GRPN) at one point in time. Although both of these companies provide very practical everyday services, they ultimately went to create double edged swords of demise for their companies; Pandora whose royalty fees increase as traffic does, creating a blackhole for profits and Groupon whose refund policy, while very attractive to customers, entails that they take the hit on any unsatisfactory deals that are sold. Unless LinkedIn can avoid some serious cyber bullying on the road ahead, they could find themselves alongside the numerous other tech-could've-beens. The profile for success has been created, but as with most tech companies, I’ll believe it when I see it.
Patrock19 has no positions in the stocks mentioned above. The Motley Fool owns shares of LinkedIn. Motley Fool newsletter services recommend LinkedIn and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.