IPO Mania — LinkedIn up 100% in 2 hours — PER reaches 950

LinkedIn is up 95% as I write this post, in the first hours following the IPO. It traded at above $92, which was more than a 100% gain.
May 19 (Bloomberg) -- LinkedIn Corp., the largest professional-networking website, jumped as much as 85 percent in the first day of trading after its initial public offering.
The stock surged $38.36 to $83.36 at 10 a.m. in New York Stock Exchange composite trading. The Mountain View, California- based company sold 7.84 million shares at $45 each, according to a statement released yesterday. The company had raised the proposed range for the share sale on May 17, to $42 to $45 each from $32 to $35.
So now, the market cap is in the $9-10 billion while company generated $9 million last year, and is hoping to generate $15 million this year. This means we have a price earnings ratio of about 950 and a forward PER of 650 ?? Is my calculation completely wrong? Or are we back in the twilight zone???

Interestingly, pundits write reports to explain why it is NOT a new bubble. Just watching the interview reminds me of all the silly rationalisation of the tech bubble a few years ago...

2011 seems to be the year of all the extremes, and things completely unimaginable just in early 2009 are now happening, investors' greed and irrational exuberance having reached historical extremes in several domains since late 2010.

Here's a transcript of the embedded CNBC video below:
62 companies have IPOed so far this year. the top number for all of 2009[...] 2011 is shaping to probably be the best year since the dot-come bubble. and you see private equity firms looking to monetize their portfolio investments. the economy starts to regain more of its strength. but i think it's a better reflection of the overall deal-making activity with ipo volume, debt issuance kicking up. 
you could conceive of ipos as being the ultimate form of insider selling, are they not? so people are bringing them to market now, because either they think now is a good time, because of where the market is, or it's a good time because that's where the business is. and you've got pent-up demand because they couldn't access it for two or three years. but it could equally be because they don't trust the market at these levels, and they're trying it get out quick. i'm thinking particularly of glencore in the wake of the commodities bust. that very well could be. it's very much a circle of business, very much a tunnel of play momentum of ipos. you see the frenzy and the bubbles. [...]

No comments: