The Motley Fool Previous Page

LinkedIn Leaves Oil Slick on Twitter's Road to IPO

Tim Beyers
May 26, 2011

One week after debuting, and then surging to more than $120 a share, LinkedIn (NYSE: LNKD  ) has become a bona fide stock market joke.

Don't believe me? Read the headlines. There, you'll find skeptics who ignore how LinkedIn has doubled from its IPO price of $45, and instead focus on the multiples -- 30 times trailing revenue and 135 times book value as of this writing -- in declaring a social media bubble that's overdue to pop.

"History has resoundingly shown that IPO-related euphoria rarely lasts longer than a few days. Some of the largest IPO gains in history were quickly wiped out in a matter of months," fellow Fool Sean Williams wrote in the wake of the LinkedIn spectacle.

Twitter CEO Dick Costolo can't be happy about any of this. His company either needs to go public now, while some euphoria remains, or wait years to work through the turmoil that's plagued his team. I'd bet on the latter.

Twitter's tough choice
Even so, exiting now could have its advantages. Earlier this month, Renren (NYSE: RENN  ) , the supposed Facebook of China, gained 29% on its first day of trading. And on Tuesday, Russian search engine Yandex (Nasdaq: YNDX  ) debuted and soared 55%. If that isn't euphoria, I don't know what is.

Even so, it would also be folly to suggest the excitement will continue for much longer. Investors have already begun abandoning Renren for hotter issues. (The stock is down 32% since its May 4 debut.) Meanwhile, profitable tech small-timers such as Boingo Wireless (Nasdaq: WIFI  ) grow quietly by connecting consumers with wireless hotspots.

Twitter is more Renren than Boingo, unfortunately. Consider the parallels:

  • Neither company is profitable. Twitter's Costolo said as much during a late summer 2010 interview with CNN. Renren reported a $64 million net loss last year, despite a 64% increase in revenue.
  • Both attract huge amounts of Web traffic. According to da