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Comment by peterjancelis | Hacker News Reader

At a P/E of 935, I would also sell all the shares I could.

http://finance.yahoo.com/q?s=LNKD

I came here to say this. When the market places a crazy value on your stock price, it behooves you to take advantage if you really have a fiduciary duty to maximize shareholder value.

Same principle as buying up your shares on the cheap if the market beats them down unwisely.

So... why would it be a bad idea to short the stock now? Somebody talk me out of it before I make an expensive mistake.

This is why: the market can stay irrational longer than you can stay solvent.

https://duckduckgo.com/?q=The+market+can+stay+irrational+lon...

It can be very hard to time, and you have to pay dividends/interest while shorting. Lots of pain for people who shorted tech in 1998. Or financials in 2005. No limit to your downside.

Shorting excellent companies that make lots of money is generally a bad idea.

They made $3.7M last quarter. That's not "lots of money" for a $32B market cap.

Those are gaap earnings which are of minor relevance for high growth companies prioritizing usage and revenue expansion. The company made $363 million in revenues last quarter.

GAAP earnings == earnings in the context of the parent posts. Just because you slap a fancy acronym in front of the word "earnings" doesn't make it any different. However, revenue != profit. And, a 1% profit margin is pretty shitty friend.

gaap earnings are not the same as earnings and are frequently mis-leading for this type of company.

A small profit margin is almost devoid of meaning for a company not trying to generate profits.

OK so I'm not a finance guy at all, but can you explain what I'm not getting:

http://www.google.com/finance?q=NYSE%3ALNKD&fstype=ii

363M revenue. Minus a ton of things for operating income of 8M. Then tax brings it to 3.7M.

On what basis are we supposed to think LinkedIn is suddenly going to eliminate > $300M of quarterly costs?

If you do the "1 times revenue" (so about 1BN) that's still not close to being worth 32B.

I asked the same things when I was 18 in the dot-com boom and got hand-wavy responses and people talking about eyeballs and stuff. Why is this fundamentally different? I understand if it's too much to explain in a comment, but could you link to some introduction that explains why a company's costs should be ignored?

Also, why the stock would go up when they meet expectations? If you bought into the high P/E at $100 on the logic of "yeah the PE is high, but it's growing into it" then you'd expect the PE to lower as they meet their goals. Instead the PE stays around the same area and the stock goes up. That does not sound rational. Edit: Like, 1% profit margin, so even if they magically multiply that by 10 or 20 times, that'd still mean a PE in the hundreds.

A $1.5b run-rate on a product with $0 COGS and 60% growth after just 10 years in business is "making lots of money".

Keep telling yourself revenue matters without profits, and see if that lasts another 10 years. 60% growth after ten years but no profits? The only 'type' of company that is, is a loser. Some would argue even Amazon has an unsustainable formula and LinkedIn is no Amazon.

Not really. Think about Facebook's stock IPO or Cisco during the .com boom. Also think about 1929. Excellent companies that make lots of money doesn't mean that they're under- or overvalued. A P/E (price/earnings) ratio of 900 means that the market is expecting Linkedin to be much, much more profitable than it is currently. For comparison, a normal-ish P/E is around 20. Linkedin doesn't have to simply sustain its level of profits, it has to grow, and grow extremely rapidly, just to justify the current price of the stock. So people buying the stock now think that Linkedin will eventually do even better than THAT. I disagree with those people.

It's not that Linkedin isn't an excellent company or isn't making lots of money, it's that it is overvalued in the market unless its profits somehow balloon. It's the same problem Facebook had with its stock IPO.

LNKD will eventually crash if it doesn't wildly exceed expectations. It's most likely a bubble.

Heh, I had the same idea and lost a bit (if I had a proper account I woulda made enough on the volatility but that's another issue). A year ago I'd have though that by late 2013 LNKD'd would have fallen.

Look what happened last month. P/E insane, stock at $200. LNKD releases decent numbers ("as expected, LNKD exceeded expectations"), and the market decides "yeah let's just keep that P/E at the same spot".

As someone else wrote, the market can stay irrational longer than you can stay solvent. Maybe if LNKD releases a "met expectations" or "missed by 1%" people will realise a 900+ PE is ridiculous and it'll tank.

Meanwhile, LNKD would be idiotic to not sell off some more shares.

You can consider buying a put option as a form of a short. The problem there is you need to deal with the likelihood of your option expiring worthless. But your downside becomes limited.

Absolutely. When choosing between network effects vs. data, I will invest in a data company every time. Data seems to pay off in totally unforeseeable ways far into the future.

Take, for example, YouTube. Google paid $1.65bn for a company that didn't have a way to make money, but it generates massive amounts of human-labelled data. Now, a decade later, with Google's distributed artificial neural net, YouTube is granting Google sight. Google can see.

Yes, this is proof by anecdote - makes me cringe too. But bet on data. You can make lots of money.

In the case of LinkedIn, the company is both a network effect & data company.

I was thinking similar. It would take a LOT of earnings to come up with the cash that selling that equity would provide. (3-4 years of forward earnings, 30-40 of trailing, unclear on cash)

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