On Wednesday, Goldman Sachs Group Inc. (GS) upgraded LinkedIn Corporation (NYSE:LNKD)and attached a very bullish price target. Goldman Sachs put the stock at a “buy” from its previous “neutral” on the basis that the social networking company has growth in the hiring tools on the site. The investment bank gave the company a new price target of $135 from the previous target of $80, as well as boosting earnings and revenue forecasts along the way.
To really understand this ridiculous valuation, lets hear the thought process as said by Heath Terry, an analyst at Goldman Sachs:
“We believe LinkedIn is one of the companies best positioned to benefit from growth in mobile usage given its reliance on subscriptions over advertising,” “we believe this will be a key factor in driving outperformance in the sector over the next few years” (WSJ, Heath Terry).
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Shares of LinkedIn surged 8% to $99.14 but the stock hit $100 earlier in the trading day. The stock has not seen these levels since its IPO and when it fell under $100 in August. It then fell further to $60 in November but since then has been rallying. Currently the stock is up 57% in 2012.
However, does its hiring tools and advertising on mobile devices warrant such a hefty outlook? I do not believe so. This is a ridiculous valuation by Goldman Sachs because those two factors as described does not warrant an additional 35% increase in the stock. The fact that it also got the stock to be rated a “buy” and increasing earnings and revenue is unseemly. The highest shares have ever gone are to $122.70 on its IPO day. Goldman Sachs Inc. (GS) is saying that it will increase further to $135.
I can agree that the company has potential; this is not about the potential growth that LinkedIn could provide. This is about Goldman’s lofty expectations which put the stock at a high flying valuation which is not correct. LinkedIn has a great business that truly works. I am a big believer in networking and in LinkedIn but I simply can not get behind this upgrade.
How can advertising and hiring tools, etc give you a 35% increase? I would need to see numbers on LinkedIn networkers using mobile devices and advertising revenue made from its mobile site to understand the thought process, along with these hiring tools which have such high expectations. Overall, LinkedIn is a great brand and website but the stock does not deserve these types of valuations.