Monkey Brawl: FB vs LNKD

We thought we'd try something a little different today, monkeys. Patrick and I were on Gchat last night (it's how we typically communicate) and I mentioned how the Kayak IPO was scuttled thanks to the Fadebook disaster. This led to a discussion on the fair value of FB, how far it might drop, and then we moved on to LNKD. Now you have to understand that Patrick is a big LNKD fan. Me? Not so much. So we thought we'd post the transcript of our chat to see what you guys think. This starts with my commenting that the August 25 puts he bought on FB the other day should pay out nicely and goes downhill from there:

Patrick: not july
Eddie: I think you'll be dancing
Patrick: haha
it could go tot $20
but I'm out at $22
Eddie: there's a lot of macro shit out there right now that has nothing to do with FB
Patrick: yup
europe
Eddie: and FB is def one of the weak sisters at the moment

Patrick: where to you think stock price will be in 1year?
i predict $27
Eddie: wow
haven't even thought about it
Patrick: i mean
Eddie: if they actually execute it could be a good play long term
Patrick: when growth clearly is slowing
and they show minimal signs of any new monetization
Eddie: but I just think the next big thing's gonna come along and crush them
Patrick: it shoudl drop to $15-18/share
then will gradually creep up
nah, they arnt going anywhere
Eddie: someone on the site made a really good point
Patrick: unless they make some dumb moves
Eddie: anything they do to monetize is going to be really invasive
people are going to flee in droves
Patrick: yeah, i dont predict that doomsday scenario
at least for next 20yrs
Eddie: you take a free service that already has a somewhat creepy rep
and then you add in some pay-to-play features
people start leaving
Patrick: well i can see them trying to compete with like dropbox
google drive
etc
Eddie: I've given it serous thought
Patrick: i think people will stay
bc of the photos
Eddie: I haven't used FB in probably 8 months
Patrick: yeah, but for most people
it's their online album
Eddie: I guess
Patrick: nobody wants to recreate that shit
you guess?
that is fact
look at the # of images uploaded every day
lets not fall in love with
being a contrarion just for sake of being a contrarion

Eddie: lol
I'm not
I'm just recognizing that this whole realm is basically 5 years old
Patrick: i mean, they at the very least will have rapid growth outside of US
for a few more years
to get them to 1.2bn users
Eddie: trust me when I say they'll be unseated at some point
Patrick: i agree
i just dont think it's near term
Eddie: MySpace thought they were the shizzat
Patrick: dude
myspace was so much smaller
Eddie: why?
Patrick: and did not have a grip on everyones balls
Eddie: it was all about the rollout
Patrick: bc people didnt have their entire LIVES and connections like they do on FB
Eddie: FB's rollout was absolutely masterful
Patrick: yes
Eddie: velvet rope kinda shit
Patrick: it was
Eddie: there service isn't really any different
it was all in the execution
Patrick: i agree
but they won
Eddie: of course
but so will the next guys
Patrick: they beat myspace
but how will the next guys get to FBs scale?
Eddie: bro, c'mon
Patrick: 1 billion users dude
Eddie: the entire fucking Internet is only 15 years old!
Patrick: you c'mon
Eddie: this is all BRAND NEW
Patrick: that is like 1/10 people living
Eddie: there is no entrenchment
Patrick: i agree
that is where i disagree
to say there is no entrenchment
is odd
Eddie: this shit can turn on a dime and give you 11 cents change at any minute
Patrick: when the amount of time and content
peopel ahve invested in their pofiles/images/walls
is insane
Eddie: we haven't even figured out what the Internet IS yet
Patrick: wouldnt say that
Eddie: I completely agree
Patrick: this isnt 1999
if you agree
how do you think
eople will shift away from FB?
so easily?
Eddie: the same way FB overtook everything
it'll just happen
Patrick: dude
Eddie: someone will have a better idea
Patrick: there was no FB before
Eddie: they're ONLY FIVE YEARS OLD man
Patrick: 8
Eddie: ok
Patrick: 9
actually
they are 9 years old
and have captured
1/10 of world
it was either frindster
myspace
or FB
Eddie: I'm not saying they're not a phenomenon
Patrick: thatw ould win
they won
Eddie: but neither are they a monopoly
Patrick: look at G+
what happened?
G+
Eddie: someone is gonna come along and fuck their shit up
Patrick: is so much better
and it has fucking GOOG behind it
and what heppened
Eddie: that's the problem, actually
Patrick: and why did that happen?
seriously?
Eddie: because they have GOOG behind them
Patrick: having the smartest engineers and smartest people in the world is the problem?
Eddie: lol
Patrick: come on
Eddie: of course not
Patrick: and billions of $ to back it
Eddie: I'm talking about perception
Patrick: and promote it
do you know how many FB clones there are out there?
that have tried?
Eddie: GOOG could've had the idea and bankrolled it, but they should have done it behind the scenes and let some starry eyed engineer take the credit
Patrick: lol
Eddie: people don't trust GOOG
Patrick: dude, that is so naive
G+ had the best shot
Eddie: you're right
Patrick: bc they could integrate it w gmail
Eddie: the integration is clunky though
Patrick: and all other G prodicts
Eddie: I find anyway
Patrick: to get it sick exposure
only reason it didnt take off
is bc people already had their shit on FB
period.
Eddie: disagree
rollout, once again
should have made it more exclusive
and under the radar
Patrick: they did
Eddie: no they didn't
Patrick: you needed an invite
Eddie: sure, there were invites and shit
but nothing like FB
Patrick: it worked
Eddie: going campus by campus
Patrick: but
FB already domaintes campuses
Eddie: no, that's what I mean
Patrick: how are you going to introduce FB 2.0
on campuses
Eddie: FB went campus by campus
Patrick: right
but that window is closed
Eddie: and you couldn't get in if you weren't part of that student body
Patrick: and they are now everywhere
i dont see it dude
i think you WANT FB to die
Eddie: you sure you own puts?
lol
Patrick: yes
i didnt say i agreed with valuation
i disagree that they will die soon
Eddie: why do you think I want FB to die?
that's funny
Patrick: well you seem pretty convinced that they will
that they are a flash
Eddie: I am
Patrick: in the pan
like myspace
Eddie: but it doesn't mean I'm cheering for their demise
Patrick: they are SO much further along
Eddie: I'm just excited about the next big thing
Patrick: than a myspace
next big thing will likely ont be in social
Eddie: wait till those fucking Google glasses come out
Patrick: Goog TV
will kill comcast
that is what i hope
fiber optics
across US
no more fucking cable comanies
Eddie: we gotta be almost there by now, huh?
Patrick: 10yrs
Eddie: they've been laying that shit for 15 years
Patrick: cable companies
Eddie: maybe more
Patrick: will be like curent day newspapers
dying
yeah, no idea abt fiber
timing wise
Eddie: I'd love to get off my cable modem and on to fiber optics
Patrick: but Goog has the resources to do some razy shit
agree
if goog can bring it to your home for $30/month
everyone would switch
Eddie: we live in interesting times
Patrick: ha, yes
so what do you think is the "true" value of FB
Eddie: and I'm betting something comes from out of left field and changes it all
Patrick: right now
at $1-$1.5bn in earnings?
Eddie: I'm too old to value FB
Patrick: hha
Eddie: I'm thinking 20 pe
Patrick: you think it's like $0?
Eddie: where would that put it?
$8 or so?
Patrick: $20-$30bn
Eddie: yeah
Patrick: i think $30bn is about right
given upside
potential
Eddie: yeah
so maybe 25 p/e
Patrick: they are at $60bn now
Eddie: so you're looking at $14
fair market
Patrick: yeah
Eddie: sounds right
Patrick: i think that is right
i dont see it below $18 though
if it breaks $20 woudl be shocked
Eddie: I know you're a big LNKD fan
Patrick: but i can see it hitting $22
Eddie: but I don't see how that's at $100 right now
Patrick: haha
yeah
I bought in at $90
or $89
Eddie: FB actually helped that deal
somehow
Patrick: shoudl not be over $100 now
I bought it for long run investment
not a big pop
Eddie: you see, I think they have a way better business model
Patrick: i agree
Eddie: but crazy overvalued
Patrick: at $110 yes
Eddie: but that's what I'm talking about
I'm too old to value these deals
Patrick: at $80-90, no
looka t growth
and dont look at P/E
look at P/sales
E is so miniscule
Eddie: hahahahhahahaha
Patrick: sicne they just went profitable
so it's like looking at a start-up
and saying
Eddie: that's what we used to tell all the rubes when we were pitching these horseshit deals
Patrick: well their P/E is $2,565
x
that is WAY overvalued
it's a dumb ratio to look at
looka t P/Sales
sales are real
Eddie: ok
Patrick: this sint some pre-rev compan
Eddie: so what's the multiple
Patrick: it's i think ~15x
now
Eddie: if it's anything over 7 or so, you're crazy
Patrick: lol
they jsut doubled their size
Eddie: that's why I was allowing 7x
Patrick: it's grwoing 80-100% across all business lines
so that is 7 next year
Eddie: you need to get on the phone and start pitching this shit
you'd make a bundle
Patrick: lol
point it
is
i can see LINKED In
becomeing THE professional netowrk
it already is
and they have the right guys on mngmt
Eddie: I agree
across the board
Patrick: that is why it is getting crazy love from mkts
Eddie: just not on the valuation
Patrick: bc these guys fucking execute like maniacs
well lets extrapolate
in 5 years
Eddie: hahaha
Patrick: you dont think they are going to be able to
Eddie: I'm not gonna buy any stock from you
Patrick: grow revenue
Eddie: lol
Patrick: on avg
50% yoy?
Eddie: no fucking way dude
50% growth for the next 5 years
Patrick: on avg
Eddie: not possible
Patrick: why not?
Eddie: well, ok
Patrick: they just did 100%
Eddie: I haven't seen it in my 43 years
that's one year, man
Patrick: ok
lets say 30%
YOY
Eddie: that kind of growth is unsustainable
still outrageous over 5 years
think about it
Patrick: ok
so they are at ~600m in rev right now
Eddie: if they double that, they'll be HUGE
Patrick: at 30% per year
that is $2.2bn of revenue
in 5 yrs
Eddie: yup
I don't see it
Patrick: that is only 4x
their curretn revenu
they have a TON more room to grow on users
unlike FB
so a lot of their growth can come from that
so ok
Eddie: what happens when the economy improves?
Patrick: lets say they dont get to $2bn
Eddie: and people aren't looking for work as much
Patrick: lets say they only get to $1.3bn
of rev
in 5 yrs
Eddie: ok
Patrick: that's a fucking failure
15% growth
on avg
but ok
lets jsut assume that is all they can do
Eddie: on what fucking planet is doubling revenues in 5 years a failure?
Patrick: when you are LinkedIN
and have the world to conquer
as many users as FB to get signed up
Eddie: now you're going all fanboi on me
Patrick: that is where
Eddie: lol
Patrick: and a monetization model
can they not get to 800m users?
doesnt everyone on earth
want a job
Eddie: no, I don't think they can
Patrick: or has one?
why not?
Eddie: first of all, it doesn't have the appeal or utility of a FB
Patrick: it has more uitlity than FB
it is for your career
Eddie: if you look at FB's user base compared to LNKD's, they're apples to oranges
Patrick: ?
why
many peopel on both
a TON of people on both
like 100+million
Eddie: because there's probably ~100 million FB users under the age of 16
Patrick: ok
but arent they in workfore in 7yrs?
Eddie: and another ~300 million who neither have nor want careers
Patrick: ha, ok
so their cap
Eddie: bro, you're talking about a billion fucking soccer moms
Patrick: is 400m?
ok, so get rid of all women in world
and all kids
still 1+bn
Eddie: I like where your head's at
Patrick: lol
point is
the only way you dont like LI
is if you think
FB can "professionalize"
somehow
Eddie: no no no
Patrick: or an app on top of FB
Eddie: I think you've got Wall Street blinders on
Patrick: lol
ok
Eddie: there just aren't that many professionals out there
Patrick: tell me the short LI story
Eddie: compared to how many dipshits there are on FB
Patrick: 160m users on LI already
Eddie: not worth $100 a share
BOOM
that's the short LNKD story
if they had absolutely stellar growth
and the economy really got cranking again
Patrick: that wont even matter
more people out of work
more people searching
Eddie: they might get to 4-500 million users
Patrick: less people paying for premium
Eddie: but that would be EVERYBODY who has a real job
Patrick: so
they dont need to get there is my point
they can get to 300m users in the next 5 yrs
and it's a home run
and nobody
with a sane mind would bet against that
Eddie: yeah, it's probably worth close to $100 a share at that point
oh, wait...
it's ALREADY at $100 a share
Patrick: so if they get to 300m users
and are generating $2bn in revenue
Eddie: fuck
Patrick: and are on their way to 1bn users
Eddie: wait wait wait
how does 300 m users = $2b in rev?
are you huffing paint?
Patrick: you dont think they will improve their conversions at all?
over 5 yrs?
Eddie: they're at ~$600m right now
Patrick: ok, $1.5bnin revenue
Eddie: and I like their conversion rate
Patrick: point is, that is assuming no new products and a similar conversion
at that point
they'd stillb e growing like crazy
Eddie: agreed
Patrick: (if they got to 300m)
Eddie: but it's already priced in
Patrick: and they woudl be trading at 4x rev?
no way
Eddie: because there would be no growth left at that point
Patrick: even with multiple contraction
no growth?!?!
at 300m users?
tell FB that
as they march to 1.2bn
Eddie: dude
it's not the same thing at all
Patrick: right
monetization is better
on LI
Eddie: we have to post this convo to the site
Patrick: go for it
point is
Eddie: probably get more hits than anything in the past month
Patrick: 5yrs
even with multiple contraction
fine
maybe it's only at $140/share
but in 10-20-30yrs after taht
Eddie: now you're just being a jerkoff
Patrick: I think it's a great long term play
haha, why?
Eddie: LNKD doesn't exist 30 years from now, and neither does FB, and neither do I
Patrick: what other company has the same growth profiel as LI?
oh please
with the doomsday shit
FB was supposed to be dead
5 yrs ago according to all you doomsdayers
Eddie: you're best shot at $140 is LNKD getting acquired in the next 5 years
Patrick: it is WAY overvalued now
Eddie: by FB
lol
Patrick: hey, no arguments there
would be happy with a quick pop
point is
Eddie: my battery's about to go
Patrick: name me another company
that you think has better prosepcts for reach
and for $s
Eddie: WSO
Patrick: lol
Eddie: how do you like me now?
Patrick: wish you were right dude
Eddie: hey, I gotta jet and go plug in
Patrick: ok
talk later
Eddie: I'll throw this up on the site tomorrow
Patrick: sounds good
Eddie: we'll see what the jury of our peers thinks
Patrick: perfect
Eddie: should be good for a laugh
talk soon
Patrick: for sure
Sent at 10:56 PM on Wednesday

Disclosure: Patrick is long LNKD and is long FB AUG 25 Puts. I have no position in either security.

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