Facebook Inc (FB), LinkedIn Corp (LNKD): Stay Away From These Social Giants…For Now

LinkedIn

Earlier, I promised some additional thoughts on LinkedIn Corp (NYSE:LNKD). LinkedIn also operates an online network, but it is focused on connecting professionals with a business focus to its content. Users can pay for a premium account that can help with recruiting, selling, job searching, etc.

Whereas Facebook stock has been a loser, LinkedIn stock has been a winner for investors since its IPO.

However, LinkedIn faces similar valuation issues as Facebook. Thankfully, the market cap is only $18.8 billion (that’s still high) compared to the $59 billion of Facebook. But, its P/E and Price-to-Sales (16.9) are sky-high.

I like LinkedIn Corp (NYSE:LNKD) because it has two things that will allow it to stick around for a while. First, it is focused heavily on the professional market. If you give businesses a relatively inexpensive tool to help sell, market, and recruit, then it can be difficult for companies to switch off, especially if most all of the audience it desires is already on the network.

Second, LinkedIn Corp (NYSE:LNKD) will constantly be adding new users in the form of college graduates. Certainly not everyone uses LinkedIn, but a large percentage of professionals do. It is an easy way to stay connected to others and find jobs when needed.

Bottom line

We have one stock that has been great (LinkedIn Corp (NYSE:LNKD)) and one stock that has been terrible (Facebook). But what we really care about is where they are headed. Unfortunately, the valuations on both stocks are very expensive. In both cases, an investor is betting heavily on rapid growth.

Facebook Inc (NASDAQ:FB) has a taller hill to climb because it already has the users, but needs to show investors that it’ll make money in the long-term. LinkedIn is making money on its current user base, but needs to continue expanding upon that and adding new users.

I’m wary of both companies at these valuations. If nothing else, wait for a pull-back and a big discount before you buy these stocks.

The article Stay Away From These Social Giants…For Now originally appeared on Fool.com and is written by Dave Zaegel.

Dave Zaegel has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook and LinkedIn. Dave is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.