By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 4/12/12 Sign up for free Cabot Wealth Advisory e-newsletter
I'm not eager to do much buying here; I think the short-term could be rocky, and earnings season is just getting going, layering more uncertainty. Still, when putting together my watch list, I'm focusing on names with great growth that are still acting properly.
One of them is LinkedIn (LNKD), the fast-growing professional social networking site that sports a sky-high valuation ... but also has huge sales and earnings growth and even bigger potential down the road. Here's what I wrote about the stock in Cabot Top Ten Trader back on March 26:
"LinkedIn is a leader in the new wave of social media Internet stocks. The company is basically Facebook with a suit and tie--the company's 150 million-plus members use LinkedIn as an online Rolodex, and because of that, it's emerging as one of the best ways for companies to find the talent they're looking for. Thus, the whole job-seeking industry is being turned on its head—instead of companies advertising job openings and individuals having to make the first move, companies can now take the lead, finding the people that could fit best ... even if they're not looking for a new job! LinkedIn's largest and fastest-growing revenue source is from its hiring solutions segment, where companies pay for the tools to successfully mine its database. Advertising and paid subscriptions make up the rest of revenues, and both of those are growing rapidly, too; efforts by the company to make itself something of a professional portal, where relevant business articles and ideas are presented on a user's page, have resulted in vastly increased traffic. Of course, investors are already excited about the concept—LinkedIn has a lofty valuation (about $10 billion, compared to just $522 million in revenue during the past year), but the triple-digit revenue growth and healthy earnings estimates (up 80% this year, and another 73% in 2013) make this one of the top "glamour" stocks in the market. If management continues to make the right moves, this company could go far."
At that time, LNKD was hovering just over 100 per share after a jazzy analyst upgrade on the shares. It then pulled back into the high 90s on very light volume ... impressively light considering the market's wobbles. And then it surged higher today on some positive analyst commentary.
However, after a terrific advance in recent months (60 to 106!) this stock has earned a breather and my guess is that shares won't simply explode higher from here. It might even build out a new base. I think LNKD is one to keep on your watch list, though, as the huge-volume accumulation during the stock's January-through-March advance, the quiet retreat in recent weeks and the huge potential for its business all suggest the stock could be a big winner.
If you really want to nibble, try to get shares around 100 or below, but keep a stop around 89 if you do so. For me, I'm content to just watch it for now, giving it room to wear out some weak hands.
For more information on Cabot Top Ten Trader, click here.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory 5/21/11
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Investors have been anticipating the IPOs of many major social media companies for a couple of years now and finally got their first taste of how the industry will fare on the open market with the debut of
LinkedIn (LNKD) on Thursday.
The company originally priced its IPO at $32-$35 per share, but raised that to $42-$45 on Tuesday because of growing demand for the stock. It ended up selling 7.84 million shares on Wednesday night at $45 each. That put LinkedIn's valuation around $4 billion (the previous price had it around $3.3 billion).
Not only did the IPO price much higher than expected, but the stock shot up 110% in its first day of trading on Thursday to close at 94! That effectively doubled the company's valuation in one day, bringing it to around $9 billion.
LinkedIn isn't as big a name as social media behemoth Facebook, but the professional networking site does boast 102 million users (to Facebook's 500 million). LinkedIn, which was founded eight years ago, only made $15.4 million last year.
So why did investors value it so highly? Because of its perceived value in the marketplace and future potential to become as big or even bigger than Faceook, but in the career-building space.
LinkedIn does have three revenue streams: online advertising, premium subscriptions and charging business for recruiting tools that should help build the company's bottom line in the future. But will they be enough? It's too soon to tell and you're best off watching the chart to see how it trades in the coming weeks and months.
How LinkedIn performs in the stock market could be an early indication of how other social media companies, like Groupon and Twitter, will do when they come public. And many analysts saw LinkedIn's debut as a very bullish sign.
LinkedIn's story is a good one and it certainly wowed investors this week, but at Cabot, we generally do not advise buying stocks that have just had their debut. We like to see stocks get a little trading history behind them before jumping on board and with LinkedIn's numbers still lacking, we'll need to see some improvement in that area as well. This is definitely one to watch and possibly revisit once it gets a little more mature.