Jim Cramer, host of CNBC's Mad Money, succinctly expressed the thoughts of many analysts regarding the LinkedIn IPO and its early success.
It's all downhill from here, Cramer said on his show.
Cramer was adamant that the LinkedIn deal was not good for markets, not a good buy and it sets a dangerous precedent. He says this very well could be a repeat of the dot-com bubble, which took place in the late 1990s and eventually burst in the early part of the millennium.
There were 300 companies that went public between 1999 and 2000, only a handful are still around today, Cramer said.
Cramer's thoughts on the LinkedIn came shortly after the company nearly tripled its IPO valuation on its first day on Wall St. LinkedIn's stock rose to $115.09 before settling to its current place which is anywhere between $95-$105 per share. Still, the impressive response to LinkedIn has many analysts nervous about the reality of the situation.
Financial analysis firm Morningstar Research has LinkedIn valued at $27 per share, well below its current $100 per share status. Like many others, Morningstar analyst Rick Summer says LinkedIn has a good-sized user base with potential for advertising revenue. However, he's not sure how easy it will be for LinkedIn to maintain that user base while creating a website that is more appealing for advertising dollars.
Online advertising is an important component of the company's revenue stream, and management has instituted some initiatives to increase traffic and page views on the website. It is not clear to us that individuals want to spend more time at LinkedIn, and the value might only be in the contact database and resume-maintenance capabilities. If the website changes dramatically to become more of a content destination site, users might stop using LinkedIn, Summer said.
The company's premium services, Morningstar says, are practically non-existence in terms of a revenue generator. Summer doesn't see that changing any time soon.
Ray Valdes, analyst at Gartner, also recognizes LinkedIn as a viable business with a lot of users and revenue opportunities. However even with those opportuitites, he says LinkedIn's high stock price is destined to drop.
It's matter of time before it sinks back down to an appropriate level, Valdes said. It all depends to what extent there is generalized bubble. In that scenario, valuations stay high for a longer period of time.
Veteran technology analysts, like Rob Enderle of the Enderle Group, say the pent up demand for a social networking company to go public caused LinkedIn's stock to soar. However, Enderle says LinkedIn will eventually correct itself.
LinkedIn, Facebook, Twitter - they don't have Google's potential for advertising dollars, Enderle said. These networks will correct and investors will get nervous and that will damage their ability to come out at a high rate.
He says even as quick as LinkedIn's first quarter financials could scare the crap out of investors.