This is nothing more than a legalized pyramid scheme.
The valuation of LinkedIn has nothing whatsoever to do with the business, its performance, future potential or current assets.
It has everything to do with demand for its stock being high.
At some point, the fad will die and a whole host of small time investors will lose their shirts (or houses, life savings, retirement funds, what have you).
Like all pyramids, if you can get in now you probably will make some money, but don't ever fool yourself into thinking this has bearing whatsoever on anything but your position in the pyramid. This will come crashing down. LinkedIn is NOT a $4 Billion company. It's just a matter of when.
News flash: every company's stock value is based on demand for its stock. This is how the price for everything is set.
Maybe when we discover true stock-picking clairvoyance this will change and every stock's price will be based on its true future potential, but I wouldn't hold my breath waiting for this to happen anytime soon.
The demand however is based on "expert analysis" that suggests that LinkedIn is worth 4 billion dollars.
I don't have an issue with demand setting the price; I have an issue with that demand being justified by linking it back to the potential performance of the company in such a way that anyone with half a brain can seen is bordering on the ludicrous.
If the problem was limited to investors that were prepared to take risks and pay for their own loses that would be one thing. The issue I have is that when these things do come crashing down, it seems to hurt everyone but wall street.
It's also unsustainable. LinkedIn will never be worth however many billions of dollars it's valued at right now without a healthy does of speculation and fad-type demand.
They only made $15 MM last year. That's a perfectly acceptable profit and a well run company, but it is not billions of dollars.
If you're looking for a scandal, how about the apparent gross underpricing of the stock by linkedin's investment bank? Isn't the reason companies hire these "experts" is that they have a good idea what price people will pay for your stock? Missing by over 50% is pretty bad.
EDIT: On the flip side, you can't blame the banks if the institutional investors are simply overpaying.
Every IPO underwriter has to make an educated guess as to the opening price of the stock. Again, the "apparent gross underpricing" won't really be apparent for months, and it certainly wasn't apparent at the time the IPO was priced, since we can assume that their underwriter does not possess True Financial Clairvoyance(tm).
The valuation of LinkedIn has nothing whatsoever to do with the business, its performance, future potential or current assets.
It has everything to do with demand for its stock being high.
At some point, the fad will die and a whole host of small time investors will lose their shirts (or houses, life savings, retirement funds, what have you).
Like all pyramids, if you can get in now you probably will make some money, but don't ever fool yourself into thinking this has bearing whatsoever on anything but your position in the pyramid. This will come crashing down. LinkedIn is NOT a $4 Billion company. It's just a matter of when.