Social Logic – It’s illogical, and not really social either

“We have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful” – LinkedIn’s offer document.

So would you buy shares in LinkedIn or ITV?

LinkedIn is twice as valuable as ITV, based on share transactions after one day of trading; almost twice as valuable as FTSE stalwarts such as Tate & Lyle; 30% more valuable than Next. LinkedIn’s net income last year – £9 million; ITV’s pre-tax profit last year – £321 million.

This of course comes after the company’s valuation doubled on day one of trading. There are some rich guys at LinkedIn, but they could have been richer still if the banks hadn’t left half the value “on the table”. There are further red faces at Goldman Sachs too, which sold its stake for $39 million (valued at $82 million now). Yesterday’s valuation is equivalent to 34 times projected sales this year. Anyone want to offer us that for MediaTel? Don’t all shout at once!

Pundits seem to be finding it hard to justify this valuation with anything other than the fact LinkedIn is a “social” business, and as considerably more hefty valuations around Facebook, Twitter and Groupon indicate (which are probably about to be inflated a lot more this morning), “social” sells.

Except LinkedIn isn’t really “social” at all – not if you ask the execs in the UK how they describe their business, and probably not given that 40% of its revenues come from “recruitment solutions”, and 56% come from field sales v 44% from online sales. It’s a huge recruitment business… isn’t it?

And yes, like most of you, I expect I’d have bought LinkedIn shares ahead of ITV shares earlier this week (but not now) even though the valuations defy logic… and sold them last night – because the valuations defy logic!