Bull and bear: LinkedIn success shows we are in no dotcom bubble territory, or does it? - The Share Centre Blog

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Michael Baxter

Bull and bear: LinkedIn success shows we are in no dotcom bubble territory, or does it?

Written by: Michael Baxter on February 8th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: LinkedIn success shows we are in no dotcom bubble territory, or does it? What’s the point of purchase? More good news from China and Germany. UK may avoid triple dip. Companies in the news: Crest, Centrica, ICAP

LinkedIn success shows we are in no dotcom bubble territory, or does it?

When LinkedIn was floated and this column argued its shares were not overvalued, and we were not in the middle of another bubble, many readers disagreed.

As an aside, did you hear the story of the Chinese Premier Zhou? He was once asked about the political significance of the French revolution. He is said to have pondered the question for a few moments before replying: “It is too soon to tell.” As ever with these great quotes there is a debate over what he really said, and what he really meant. But, hey, let’s not little things like facts stand in the way of a good story.

Returning to LinkedIn, with a p/e ratio of 800 some might argue the stock is even more grossly overvalued, and that just because its shares have done well so far, it is way too soon to tell whether we are in bubble territory.

But what we can say is that growth is pretty impressive. In Q1 2011 the company made a profit of $2.1 million. In Q4 2012 profits were $40.2 million. In 2012 the company’s revenue was $972 billion, compared with $522 billion in 2011, $243 million in 2010, and $123 million in 2009.

LinkedIn’s opportunity lies in business to business advertising. It has the potential to dominate this arena. Its problem is that its users are not as active as users on Facebook. If it can crack that, the revenue and profits growth can continue for some time.

On this theme the company’s Chief Exec Jeff Weiner  said: “Members are becoming increasingly active on LinkedIn.”

At IPO the company was valued at around $10 billion. At the time of writing, its market cap is $13.33 billion. Some might say that is quite a multiple of valuation to profits.

Then again, shares are up around 33 per cent since float. Maybe there are slightly fewer cynics on this particular company out there now.

What’s the point of purchase?

You almost do it without thinking. You are in the queue, weighed down with your big shop, and there, just by the till, is a magazine; a magazine you may quite like to read, or perhaps you spot some chewing gum. All of sudden, as if by magic, said item is on the conveyor, with the rest of your stuff. You put it there, but it was not an action you really thought about; it’s as much instinct as deliberation.

How many products are sold like that do you think? They are called spontaneous purchases. Point of Purchase advertising is the key; it almost communicates with your subconscious.

But supposing, instead, you were looking at your phone, sending an email, checking out Facebook, or reading a text?  Would your spontaneity go out of the window, as it were, as opposed to Windows?

According to today’s ‘FT’, sales of women’s magazines are falling in the US and mobile phones have been partly blamed. The pink-un quoted David Carey, President of Hearst Magazines, the company behind ‘Cosmopolitan’. He said: “We do find a number of people, if stalled for a minute, will steal a look at their email or news feed…Everyone that has products at checkouts has to battle for consumer attention.”

Apparently, in the magazine world it is called “mobile blinder”.

Single copy sales of US magazines fell pretty dramatically last year. They were ­ 9.5 per cent down on the year before. Mobile blindness is being cited as part of the reason.

So if magazine sales are suffering in the US. Won’t it be like that in the UK too?

This may not be the disastrous piece of news for WH Smith that you might think. After all, if you go into this store, you are probably quite deliberately looking for a magazine, – either that or a protractor, set square, or another piece of stationery that amazingly in this computer world, some people (kids mainly) still use.

But what about blindness to the effect of mobile phones/tablets on the need for magazines?

Magazine smell good, they are good to touch, their glossiness can perhaps make us feel more ‘glossy’. But they said much the same thing about books, and look at Kindle sales to see the future of that particular medium.

Does that mean there will ever be a need for shops selling magazines? Well, it was told here recently, how many retailers are using their stores as a kind of shop window for their web site. You go into the shop, see the product you like, and buy it online, and then collect it from the store too

Maybe, we will see point of purchase advertising of the future link directly to our phone or tablet. So we are at an airport, and our phones buzzes, and the message appears: “download ‘Cosmopolitan’ now”. It will help of course, if the advertiser knows what magazines you are interested in. That’s where Facebook can come in.

If your thing is reading more serious magazines – the ‘Economist’, for example, or ‘New Scientist’ – then that might be where LiinkedIn comes in.


More good news from China and Germany

On this occasion it was kind of double good news from China; enough, perhaps to make the bulls stamp their feet and emit a very loud moo.

Exports from China in January were up 25 per cent on the same month in 2011. So that’s good because not only does it provide more evidence that China is to avoid a hard-landing, but maybe it provides evidence that the rest of the world, which must be buying more stuff from China, is improving too.

But the really loud moo arises because imports grew at an even faster pace – they were up 28.8 per cent.

But before the bears run for their caves, it should be pointed out that the data may have been distorted by the timing of the Chinese New Year, with factories trying to increase output  before the annual festivities.

Meanwhile, in Germany, industrial production rose 0.3 per cent in December. So, the bad news was that German’s economy contracted in the final quarter of 2012, but the good news was that by the end of that quarter, things were looking up.

The positive data was consistent with other more anecdotal type surveys, such as the German ZEW, IFO and PMI indices, all of which have been looking up over the last few weeks.

It does seem to be more likely than not that Germany is going to avoid falling into recession during this quarter.

UK may avoid triple dip

Yesterday also saw more evidence that the UK economy may avoid suffering a nasty triple dip recession. According to the BRC, retail sales were up in January.  That story broke earlier in the week. Composite PMIs out on Tuesday pointed to very modest growth. Yesterday, data showed a month on month rise of 1.1 per cent in industrial output in December, with manufacturing up 1.6 per cent.

Looking at the data more closely, quarter on quarter data pointed to contraction, which is consistent with the ONS figures showing the UK economy contracted in Q4. But it is clear that by December, things were picking up.

It does not mean the UK will avoid a triple dip, but it is looking likely.

Companies in the news

There was a distinct lack of bullishness among the tipsters this morning. At the ‘Times’, Tempus was about the most positive when discussing Crest, which has used the cash it received from selling off a subsidiary to pay off some debt. Tempus said: “strong hold”.

At the ‘Telegraph’, Questor relegated Centrica from a buy to a hold. Questor likes the company’s balance sheet, but frets a little over the regulatory risk to its British gas residential distribution busines

Returning to Tempus, it took a look at ICAP. LIBOR is the big worry for this company, and it is under investigation by the FSA. Tempus said if you are optimistic about the market then the shares look attractive. If you are more cautious, it said avoid until LIBOR is sorted out.



These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Centrica, China exports imports, Crest, Germany economy, ICAP, LinkedIn IPO market cap value, mobile blinder, mobile blindness, UK triple dip

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