LinkedIn I.P.O. and Stock Surge Has Analysts Wary – NYTimes.com

LinkedIn I.P.O. and Stock Surge Has Analysts Wary – NYTimes.com.

At LinkedIn’s current valuation, investors are clearly betting the company will show phenomenal growth, analysts say. LinkedIn is trading at about 554 times last year’s earnings of $15 million (the company posted losses in 2008 and 2009).

That compares with a price-to-trailing-earnings ratio of 149 when Google made its debut in the markets or, in a more extreme example, the 947.5 ratio eBay received in its first day of trading, according to data from Mr. Ritter.

Price-to-earnings comparisons for other hot Internet companies, like TheGlobe.com or even Netscape on their opening days, are difficult as they did not have any earnings.

By another closely watched measurement, LinkedIn is trading at around 25 times this year’s expected sales, said Rick Summer, a senior equity analyst at the Chicago research firm Morningstar.

That’s high, and Mr. Summer says LinkedIn could increase its revenue to $1.5 billion in five years, from $243 million last year. That makes LinkedIn worth about $27 a share, by his estimate.

With LinkedIn shares trading at $93, investors are betting the company’s revenue will rise to $4 billion in five years, Mr. Summer said.

Impossible? No. Difficult? Yes, say analysts.

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