Notice also that Morningstar price estimate for LinkedIn is $135 per share, well below its current $235 market price. RBC Capital has a $190 price target on the stock, while UBS AG has a “neutral” rating and $230 price target.
Finally, for those who still have doubts whether LinkedIn is overvalued or is a growth stock, the following graphic using data from the latest earnings release is worth checking. LinkedIn is increasing revenue, but the growth rate of revenue is decreasing, showing that LinkedIn has already graduated from its “high growth phase” and it’s becoming a mature IT firm.
Better alternatives?
Although LinkedIn is probably the best monetized social network at the moment (with revenue coming from advertisement, premium subscriptions and Human Resources solutions), I think that the current price estimate is far above the true value that fundamentals suggest. Add to this increasing competition from Viadeo and other smaller networks, and you have plenty of risks to stay on the sidelines.
Social networks are a relatively new industry, and investors need to learn more about how to value them. In the meantime, I expect PE ratios to be substantially higher than the S&P 500 average. But a 600+ PE ratio is definitely not inside my tolerance margin.
There are some interesting alternatives to LinkedIn Corp (NYSE:LNKD) worth exploring. My favorite picks include Facebook Inc (NASDAQ:FB) and Renren Inc (NYSE:RENN).
Facebook’s high user engagement, especially when using the mobile app, is a plus. Also, Facebook Inc (NASDAQ:FB) is still experimenting with various monetization approaches. This suggests that monetization can get even better, as Facebook Inc (NASDAQ:FB) ads are still rare. The high exposure to mobile (41% of total revenues came from the mobile business) makes this stock worth watching.
Renren Inc (NYSE:RENN), on the other hand, has two merits. First, it owns the biggest social network in China. Most Renren users are young or students, but as they enter the labor force and their income starts increasing, Renren’s user base will become richer. The second merit is that Renren has a diversified portfolio, owning a game platform, a wedding site and even a Groupon-like app, Nuomi.com, which is growing fast. At the moment Renren is not in the profit zone, but I expect it to break the buck by the beginning of next fiscal year. The time to buy, though, is now.
The article Why the Most Overvalued Social Network Stock Keeps Growing originally appeared on Fool.com and is written by Adrian Campos.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of LinkedIn. Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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