Musings On Markets: June 2021

By whatiwore at 13 days ago • 0 collector • 19 pageviews

While I have not valued Linkedin explicitly on this blog for the last few years, it has been a company that has impressed me for a simple reason. Third-quarter revenue came in at $499.7 million, which while down 48% over last year, was still better than the $495.8 million expected. For instance, as the risk free rate has dropped over the last few years, note that the expected return for unique boutique s has stayed around 8% during that period, leading to higher and higher equity risk premiums. In particular, central bankers have failed to incorporate three problems: that interest rates do not always follow the central bank lead, that risk premiums on equity and debt may increase as rates go down and that exchange rate effects are muted by other central banks acting at the same time. Unlike many other social media companies that seemed to be focused on just collecting users, Linkedin has always seemed more aware of the need to work on two channels, delivering more users to keep markets happy and working, at the same time, on monetizing these users in the other, for the eventuality that markets will start wanting more at some point in time. You do not need to create or stock a product, you do not need to deal with complicated payment processors, you do not need to spend extra time on support or processing refunds and you still get to learn the fundamentals of internet marketing.


A truth you need to face is that retail business has migrated to the internet. As investors, the decision that we face with GoPro and LinkedIn is whether like Icarus, they soared too high and have been scorched (perhaps permanently) or like Lazarus, they will come back to life. The other is that of Lazarus, who in the biblical story, is raised from the dead, four days after his burial. Led by Nick Woodman, a CEO who had a knack for keeping himself in the public eye (not necessarily a bad thing for publicity seeking start up), and selling an action camera that was taking the world by storm, the company’s spanning of the camera, smartphone accessory and social media businesses seemed to position it to conquer the world. Viewing it as part camera, part smart phone and part social media company (whose primary market is composed of hyper active, over sharers), I estimated that it would be able to grow its revenues 36% a year, to reach about $10 billion in steady state, while earning a pre-tax operating margin of 12.5%. Revisiting that story, with the results in the earnings reports since, it looks like competition has arrived sooner and stronger than anticipated, and that the company’s revenue growth and operating margins will both be more muted.


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