You don't have to be 60 years old to know the story of Mohammad Ali and the Rope-a-dope tactics he employed upon the great and unbeatable George Forman. Ali was able to absorb Foreman's punches until he was fatigued, then fought back to win the match. Titled "The Rumble in the Jungle", the fight will go down in history as one of the top sporting events.
So what does this have to do with stocks or LinkedIn (LNKD)? The first question to ask is what is the definition of the Ropa-a-dope?
In competitive situations other than boxing, rope-a-dope is used to describe strategies in which one party purposely puts itself in what appears to be a losing position, attempting thereby to become the eventual victor.
LinkedIn(LNKD) has been trading for over a year since it's IPO and has endured quite a few negative material events. You had the secondary offering of 8.75 million shares in november of 2011, the ending of the 55 million share lock up in march, the password breach in June, the Facebook Job board rumor, the devastation of social network stocks like Facebook (FB)/ Zynga (ZNGA)/ Groupon (GRPN), and oh yeah LinkedIn trades at insane valuations.
Taking all that data into account, one would assume LinkedIn (LNKD) would be trading down from it's IPO, yet its up over 10% from it's close price that day, and over 100% from it's IPO price. How can that be? LinkedIn has a $10 billion market cap yet will do less then $1 billion in revenue this year and has an astronomical P/E ratio 634. With other social media stocks reporting lackluster results so far this month, it would be hard to think LinkedIn (LNKD) would not follow suit. And with it's lofty valuation, it would be easy to figure a 20%+ downward move on any type of earnings miss.
The market has had a tough time deciding which way LinkedIn (LNKD) will go after hours thursday, and has traded in a wide range this week. I expect that to continue as the bulls and bears exchange punches.
But does't LinkedIn(LNKD) feel like its pulling the Rope-a-dope on the bears. Lulling them into a false sense of victory? You would think LinkedIn(LNKD) should be down for the count already with the earnings report on thursday being the big uppercut. But we wrote about this after their last earnings report. It's all about growth, and LinkedIn (LNKD) continues to bring it.
We fully expect to see continued growth from LinkedIn as it passes Facebook (FB) as the "Best of Breed" in the social media sector. Have a feeling the bulls will come fighting back on the bears after Thursday 'Rope-a-dope" style. I'll leave you with a great interview with CEO Jeff Weiner on CNBC in February .
“I’ve said it in the past; I would say it again: We leave the valuations to the marketplace. We focus on executing our plan. We focus on our fundamentals. And if we get that right, over the long term I think the valuation will take care of itself,” he said.
As to the idea that a tech bubble exists, Weiner sounded bullish.
“To some extent, I think if you spoke to some analysts who are covering these companies, they’d tell you that the premium valuations in multiples that some of these companies enjoy are based on their growth rates and the prospects ahead of them,” he said. “And that’s why it’s so important for the segment to focus on the long term.”
Disclosure we currently hold the $120 and $130 weekly Linked (LNKD) calls.