Stephen Foley: Who is buying LinkedIn – and at what price?

US Outlook: Who is buying LinkedIn shares at $100? At that price, the social networking site is worth $10bn, more than 40 times last year's revenues and an irrelevantly huge multiple of profits. To justify the valuation, investors are obviously looking not to the past, but to the future.

The company has been around for eight years, remember, without growing into the sort of must-use website that Facebook, created a year later, has become. What it does have is members who see value in paying for the service it provides, making sales contacts and job hunting opportunities, and business customers that pay for access to its growing user base.

So who is investing at what price? At the originally planned float level of $32-$35 per share, LinkedIn was priced for a "fundamentally optimistic investor". They believe a "network effect" is about to take over LinkedIn, where increasing user numbers make it increasingly valuable to join LinkedIn.

At the float price of $45, it was still attractive to the "something-will-turn-up investor". These excited souls believe that LinkedIn will invent a whole new revenue stream, much in the way that Facebook concentrated first on getting big and then worked out ways to make money from its users' social connections and online activities.

And at $100, the stock is a plaything for the "greater-fool investor". These buyers think LinkedIn will be swept up in a coming wave of excitement over social network flotations, as Facebook, Zynga, Groupon et al ready themselves for prime time. These game-players are not in it for the long-term. In fact, they have a hair-trigger when it comes to sell orders. LinkedIn's executives must be very nervous.

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