LinkedIn prices IPO at $45 a share
Few Internet companies have tested the public waters since the dot-com crash. LinkedIn’s lofty valuation — some 20 times its 2010 revenue — already has invited comparisons to the heyday of the last boom.
Um. Ok.
This immediately made me think about something I read in James Montier’s excellent book Value Investing. Montier quotes a BusinessWeek article where Scott McNealy, then CEO of Sun Microsystems, says:
“(In 2000) we were selling at 10 times revenues. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold…That assumes zero expenses, which is really hard for a company with 39,000 employees. That assumes I pay no taxes…and that assumes zero R&D for the next 10 years…Do you realize how ridiculous those basic assumptions are? …What were you thinking?”
Best of luck to the $LNKD-buying lemmings tomorrow!
