LinkedIn Corporation (NYSE:LNKD) shares jumped by more than 20 percent today after a stellar earnings report that saw the company pass 200 million users for the first time. Investors are trying to get in on the social network in the hopes that it will continue to outperform, but is the firm really a buy at 1000 times earnings?
A Jeffries Research report on the company upgraded the price target to $175. Today's trading brought the company's shares just north of $150, landing them with a price target of close to 1000. Is the stock really a justified purchase at its current price point?
The firm's forward price earnings ratio is just north of 100 for 2013, and above 67 for 2014 consensus earnings. LinkedIn Corporation (NYSE:LNKD) is a valuable company, but can it really be considered that valuable? Today's market seems to think so, and the multiple earnings upgrades suggest that an even greater value could be placed on the company.
The social network is continuing to expand international, adding new languages and opening up new markets. The Jeffries report points to this. the report also highlights the faster-than-expected growth in premium subscriptions and membership across the board, as reason for the high valuation. The interesting part of the note, however, comes under the risks section.
Apparently, going forward, the only major risk affecting the company is a worsening global economic climate. That may be the greatest risk facing the company, but it's the greatest risk, by magnitude rather than probability, facing every company on the planet. There are surely some industry or company specific risks facing LinkedIn Corporation (NYSE:LNKD).
The company is a social network, that makes its model repeatable. It does however, have a wide moat, and unlike Facebook Inc. (NASDAQ:FB) it takes revenue from subscriptions rather than relying on advertising revenue. Providing a service people are willing to pay for is a better model than a service people are willing to use for free, but that doesn't make you resistant to problems.
One of the biggest risks for LinkedIn Corporation (NYSE:LNKD) is a loss of reputation. If the company has more privacy problems or has service delivery problems, it could destroy its reputation forever, and destroy its market share. The only thing it has going for it right now is a lack of competitors bu that could change.
There are risks for LinkedIn Corporation (NYSE:LNKD) and 67X 2014 earnings seems like a high price to pay for that risk. the market, it seems, doesn't agree.