This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Netflix and LinkedIn Trade at Enormous Valuations

Stocks in this article: NFLX LNKD AMZN YHOO MSFT

NEW YORK (TheStreet) -- Is there any rhyme or reason for Netflix (NFLX - Get Report) to trade at a forward price-to-earnings ratio of over 82, or over 82 times the earnings per share expected in 2014? LinkedIn (LNKD - Get Report) shares sell with a forward PE ratio of close to 98.

As with Amazon (AMZN) shares, EPS doesn't seem to matter as much as revenue growth. LinkedIn offers both. In the first week of February, when LinkedIn reports its results for the last quarter of 2013, analysts are expecting an 81% annual increase in EPS for 2013. Sales growth and revenue for LinkedIn are estimated to be up about 56% to over $1.5 billion, from $972.3 million in 2012.

LinkedIn is in hyper-growth mode and is expected to increase revenue another 42.5% in 2014.

These kinds of stock valuations and PE ratios for companies like Netflix and LinkedIn certainly can't be (excuse the pun) linked with the U.S. economy, given the horrible jobs number last Friday. The U.S. economy added only 74,000 jobs in December. That's the lowest payroll number since January 2011. Meanwhile, the unemployment rate fell to 6.7%, its lowest level since October 2008.

LinkedIn shares closed down 2.4% Monday while Netflix rose 1.4% .

The decline in jobs was due to an unexpectedly big drop in the labor force. That's partly measured by the participation rate, which fell to 62.8%, a new low since the fall of 2008.

Aaron Task, who writes The Daily Ticker at Yahoo.com (YHOO), thinks the plunge in the number of new jobs during December might have been an anomaly due to the weather, not the economy. I find that a convenient alibi.

One of the reasons I and a number of other analysts believe the jobs data is significant is that the 10-year Treasury bond moved up after the jobs announcement, with the yield plunging to 2.86%. That's well below the 3% and more to which it climbed after the Fed announced in December that it will scale back its bond-buying program. The market has confidence in Netflix and LinkedIn. But the CEOs of both companies have been selling shares of their stock for the past two months.

Reed Hastings, the CEO of Netflix, sold 15,238 shares worth $5,761,640 on Dec. 26, 2013, in a same-day sale of vested stock options. Smart move for the CEO. It cost him less than $418,000 to exercise his options to buy at $27.42 a share, and sold them quickly for $378.11 each. 

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,423.01 +35.80 0.21%
S&P 500 2,029.55 -27.54 -1.34%
NASDAQ 4,681.4970 -90.2660 -1.89%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs