Last Thursday LinkedIn had an incredibly successful IPO. Shares were originally offered for a price of $45, and by the end of the day were trading for around $94 (an increase of over 100% in a day!).
From 9:30am until 4:00pm, I watched all the "experts" on CNBC proclaim that LNKD shares were overvalued. The funny thing was that the share price just kept on rising! The "experts" were left scratching their heads.
The Business
LinkedIn is emerging as the most powerful recruitment database in the world. A growing number of college graduates, including myself, create professional LinkedIn profiles in order to help themselves get jobs. Below, you can follow a link to my personal LinkedIn profile:
http://www.linkedin.com/pub/michael-caligiuri-de-jesus/33/4b1/b38
Why is LinkedIn so popular? Like Apple products, LinkedIn is more user-friendly than its competitors. It was incredibly easy for me to make a LinkedIn profile on the internet, and it is even easier for recruiters to find me. In addition, LinkedIn enables users to create a "network" of people. This network can include anyone that is willing to accept you as a connection. For example, my connections include my two sisters and my friends from the University of Michigan. This network will also expand to my current and past employers.
What LinkedIn has that every company in the World wants is INFORMATION. For example, LinkedIn knows where I am from, where I studied, who I know, and where I have worked. In order for a recruitment department of a company to efficiently sort through this information, they must pay for access to it. This internet access to recruitment information helps companies cut down on costs and increase production, which in turn will turn the recruitment industry upside down.
Another huge revenue stream for LinkedIn is selling advertising space. Because LinkedIn has so much access to my information, they know exactly what type of ads to show me while I am updating my profile. For example, I have seen many ads for internship positions at financial institutions that I would love to work for. This serves as a great way for companies to efficiently market to their target audience. In this way, LinkedIn is much like Google.
Below is a Video Explaining LinkedIn. If you are receiving this via email, please click this link.
Google All Over Again
When Google's IPO came out with a market capitalization of 27 billion dollars, all the "experts" were kicking and screaming that Google was way too expensive and overpriced. Well, Google is now worth over 170 billion dollars. The "experts" were dead wrong.
In order to distinguish whether or not LinkedIn is overpriced, it is important not to look at current financials but instead to look at future potential. LinkedIn has already begun to revolutionize the talent recruitment industry, and I highly recommend to hop along for the ride.
Dollar Cost Averaging
LinkedIn will no doubt be a volatile investment. Some days it will decrease in value a lot, and some days it will increase in value a lot. Because of this, I recommend dollar cost averaging. This is when you stagger your investments. For example, if you plan to invest 1,000 dollars in LinkedIn, stagger your investments over a three month period. Invest 333 dollars now, 333 dollars a month from now, and 333 dollars two months from now. This will help you account for crazy price swings by averaging out your purchase price.
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