Altucher Says LinkedIn’s Worth $3 a Share; Firm Drops 17% Today

James Altucher, contributor for The Wall Street Journal said on Friday’s "This Week in Startups" news roundtable that LinkedIn’s stock (LNKD:NYSE) was overvalued and only worth $3, following the release of its Q2 earnings report last week.

“This stock is worth probably $3 or $4,” said Altucher of LinkedIn, which closed today at $75.47, down more than 17% today in a brutal market -- but more than many other tech companies including Pandora -- as the Dow dropped 5.6%.

In Q2, revenue more than doubled to $121M and its total membership to 115.8M, yet the company’s net income reached only $4.5M.

In an interview Aug. 5 on Bloomberg’s “In the Loop with Betty Liu,” LinkedIn CEO Jeff Weiner said he would to leave the discussion of the stock’s trading value to the market.

Today’s dip comes after Morgan Stanley, one of the lead managers for the IPO, downgraded its investment rating of LinkedIn on Friday from buy to hold after fellow lead manager JPMorgan Chase & Co. made the same move several weeks ago. Morgan Stanley went through with the downgrade although LinkedIn’s performance topped its expectations and consensus estimates.

This decision makes LinkedIn only “the second U.S. company since 2000 to be downgraded by two of its lead IPO managers within 90 days of going public,” according to a Financial Advisor Magazine article.   

Morgan Stanley cited the risk of other social networks developing competing products as well as weaknesses in user engagement – which is about 20x less than Facebook.

JP has decided to maintain a neutral rating on the company as well but has raised its December 2012 price target from $85 to $98.

“Your underwriters are supposed to be driving the charge,” Jonathan Honda, research associate at Interlaced Investment Advisors LLC, told LAUNCH.

When the people who have the most knowledge about a company come out and say negative things, or reduce their investment ratings, Honda said, the company’s stock is going to suffer.
Ken Sena, an analyst with Evercore Partners LLC, told LAUNCH his company dropped its rating to sell and set a price target of $70.
Evercore found, as many seem to be realizing, that LinkedIn's revenue trajectory does not support the current valuation.

“For us, we felt that the company does have a great business opportunity and getting to that $70 target … that’s about as full a stock price we are comfortable with, given our analysis,” Sena said.
That’s a big gap between the bombastic Altucher’s $4 and Sena’s conservative $70.

Either way, LinkedIn needs to grow earnings massively in the next year to justify its current $5.24B valuation.