Amazon listed on May the 15th 1997 at 18 Dollars a share, trading as high as 30 Dollars a share on its first day. The company put three million shares in the hands of new investors on that day, and you could argue that investment bankers did the company no favours, it popped "too much". It could be argued that the company could have raised more money. Amazon stock in December 1999 traded at nearly 85 Dollars a share.
In April 1999 the price traded at above 105 US Dollars a share. When the dot com bubble burst, the stock traded below 6 bucks a share in September 2001, just weeks after the terrorist attacks. When the major indices were topping out in 2007, Amazon traded at 93 Dollars and beyond. Nearly 14 years to the day, the stock traded above 200 Dollars for the first time, a few weeks ago. I remember getting this one so very WRONG!!
This is from just over two years ago, written at the beginning of May 2009, my take on Amazon at that time:
And then a theme that I really like, the big song and a dance release of the Kindle reading device yesterday. It looks like a book, it is a book, a wireless one. Not to be outdone and a long way behind, Rupert Murdoch said that they would build something similar. Because these things are expensive there is going to be a dramatic price reduction to do away with paper for books in its entirety and a mindset change, in much the same way that the music industry had to scratch their head around how music is evolving once the iPod had been invented. I like the idea.
Not enough to buy Amazon, the stock looks really stretched on a 50 plus times earnings, sounds like 2000 all over again, and perhaps folks pinning hopes on the Kindle. I remember Google also looked expensive. So did Apple. The average recommendation is overweight the stock. Estimates for the full year expect the stock to trade below 40 times earnings (provided the price stays where it is). Still stretched.
What happened between now and then though? Well, the 2009 annual report said this:
"Net sales increased 28% year-over-year to $24.51 billion in 2009. This is 15 times higher than net sales 10 years ago when they were $1.64 billion in 1999." Wow. And on the Amazon store, more wirelessly delivered books were errrrr..... delivered than real ones. The ones that smell like books, which for some reason some folks still say they prefer. They are cheaper of course, you do not need a warehouse to keep these instant and electronic books.
But my point that I am trying to make is that you must not take the kind of new technology companies like Amazon (it is really a very smart retailer in a different form really), versus the slightly older ones that look cheap now, like Microsoft, Intel and Cisco and see the latest IPO frenzy for social media stocks right now. LinkedIn, Groupon and various valuations being put on Twitter and Facebook. There are of course real ones like TenCent which already make proper money and have a proper market valuation already.
Not all social media companies are the same. Barton Biggs points out:
"The LinkedIns are beyond my powers of comprehension". According to Bloomberg data the stock trades at an earnings multiple of 1111. When last did you see a multiple like that? Perhaps ten years ago. I said to Byron though, what would you pay to know more about 100 million people who share their information (not to everybody) more freely than any government or even bank knows about them. What would you pay for that data? LinkedIn is getting a lot of naysayers (like Barton Biggs) and the stock has fallen back to just below 78 Dollars a share, which gives the company a market cap of 7.35 billion USD. So, roughly I get to 73.5 Dollars a user, that is how the market attaches value to the company I guess.
I am not trying to justify these valuations at current levels, but what does the balance of the market (who bought the stock up to 120 USD) know over ourselves? Nothing? Everything? Have you seen
Job Seeker on their website? So what costs could this save a medium sized business? I guess quite a lot, check out the
LinkedIn Recruiter.
I don't think that this business will end on the trash heap, ala Pets.com and the like, and do think that they will make good money in time. Like I said, what would you pay to know a whole host of professionals information? And being able to advertise to a direct market? What would you pay for that? 74 Dollars per person? Perhaps time will tell, I am neither in the side of the court that suggests these valuations are acceptable, nor am in the camp shouting about over valued at these levels.
Because if Mr. Market did know so well about the future, then Apple stock would not have been below 7 bucks a share in April 2003. Currently 332 Dollars a share. See what I mean? This is the reverse, the market is expecting something huge from LinkedIn. In the mean time I am yet to find anyone who has been hired via LinkedIn, but I am sure there are thousands. Do you know anyone hired that way? And time will tell. Perhaps those shouting from the roof tops will be happier to buy the stock in ten years time when it is three times the price. Or a third. We wait.