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Everyone remembers the Pets.com IPO for example, but no one remembers that it was Merrill Lynch that underwrote it and made most of the profit on the deal. The
by kprobst 15y ago
Everyone remembers the Pets.com IPO for example, but no one remembers that it was Merrill Lynch that underwrote it and made most of the profit on the deal.
The problem is the market and VC environment that allows things like these to go down, not that there are unprofitable companies. Those have always existed. But there was a time when people didn't buy into them because they were unprofitable. The way things work now is just wrong and dangerous. But it's been 10+ years since the last dotcom bust, so I guess people will be people and start falling for it again. A fool and his money and all that.
- freshfunk 15y agoIf you weren't around for the last dot-com bubble burst here's the simplest explanation for what happened then and what seems to be happening now: Pump and dump.
- firefoxman1 15y agoI agree. I can't see any investor with half a brain buying any company with a P/E of 2,147 (LinkedIn)
- fennecfoxen 15y agoI can see an investor with half a brain buying a company with a P/E of 2147 - heck, some newer companies with lots of potential have negative P/E. What you need to make up for it is a really nice growth story. Now, LinkedIn has an okay growth story, don't get me wrong. The problem is it's just not good enough. Let's do some back-of-the-envelope comparisons. Consider a relatively low-risk investment: an intermediate-term corporate bond fund. You can get about 4% yield these days. At the current market cap of $7.4 billion, that's earnings of roughly $300 million a year. That's roughly in line with LinkedIn's revenue, but they also need to pay for things like engineers and server farms. In other words, you're going to need a heck of an earnings growth story just to break even against a safe investment - and LinkedIn is nowhere near as safe as a corporate bond fund.
- firefoxman1 15y agoThat's why I prefer to look at PEG instead of P/E. It shows you the price-to-earnings relative to the earnings growth. Quite handy.