“I Bet You $117,238.20 That This Stock Explodes in 2013” (Motley Fool’s “Get Rich on Wednesday” Pick)

Which Dave Gardner pick is Jeremy Phillips Buying?

By Travis Johnson, Stock Gumshoe, February 4, 2013

Now THIS is a fun ad. Jeremy Phillips is the Chief Technology Officer at the Motley Fool, and he starts off their new ad with a great quote: “I plan to get rich on Wednesday morning — care to join me?”

Well … yeah. Isn’t that why we’re all fretting over our investments, saving precious dollars, and building strong opinions about the balance sheets and business prospects of every company we run across in our daily lives?

OK, so some of us are not entirely obsessed — but yes, most folks who buy stocks are hoping to get rich … and if we’re honest with ourselves, we want to get rich fast. Sometimes with real hope built on great stock selection, patience, portfolio allocation and counterintuitive thinking, sometimes with the same plans that a dart player makes as he steps to the line. So what is Jeremy Phillips talking about?

Usually we hear from folks who pick stocks and edit newsletters, the guys who delve into income statements and make forecasts and stand naked with their portfolio before the world. But Phillips isn’t an investment guy, he runs the Fool’s website and servers and makes sure all that stuff works for their gajillions of readers.

But he says he’s taking an idea that Tom and Dave Gardner have both recommended, and he’s running with it — putting a huge slug of his own money on the line. Here’s how he tells the tale:

“I can’t wait for Wednesday morning.

“Because I’ve just made the most important financial decision of my life. And starting in just 96 hours, I’ll see if I was right…

“If I win my bet, this stock will make a big pile of money for me by the end of 2013.

“If I lose, it’ll remain near its current bargain price. Maybe even under it. And I’ll be out some (but not all) of my $117,238. Meanwhile, I’ll still own stock in a company with a rock solid business model — one that’s poised to dominate a $130 billion market, with no direct competition.

“That’s why I don’t want you to bet against me. I want you to bet with me…

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“Place YOUR OWN bet on this stock. At whatever amount you’re comfortable investing. That way YOU can win if and when I do.

“Look, I wouldn’t be putting $117,238 of my own cash on the table if I wasn’t dead serious about this opportunity. That’s a lot of money for me… in fact, it’s FIVE times the investment I have in any of my current stocks!”

I’ve never bought a stock that made the top five list of “most important financial decisions of my life”, so I may be a bit too much of a fuddy duddy to appreciate this — but I do have outsized positions in stocks that I really have strong feelings about, so I can imagine how it feels to buy a stock position that’s far larger than any you’ve bought in the past. Whether or not Phillips is right, it seems he really believes in this stock that he thinks has the opportunity to take over a $130 billion sector.

Will you agree with him? Well, before you make that call you’ll have to know the name of the stock so you can do your own research. So, assuming you don’t want to pony up a couple hundred bucks to subscribe to Rule Breakers to get your answer … what else do we get by way of clues so we can pin the tail on this donkey a bit more free-ishly?

“In a nutshell…

  • This company’s revenue is growing more than 2x as fast as Google and Facebook. And more than 3x as fast as Amazon.com and Apple.
  • In fact, more than 59,000 of Apple’s own employees use its core product. Many of them every day.
  • The Wall Street Journal named this stock the ‘biggest internet IPO since Google.’
  • This company has a foothold in over 200 countries, with more than 200 million users.
  • But they’re adding two new members per second. That’s right, by the time you finish reading this sentence, they’ll add 10 new people to their system!”

Well, the only reason this was the “biggest internet IPO since Google” was because it happened before Facebook came public … for what it’s worth, the Wall Street Journal and similar sources also called out disasters Zynga and Groupon with similar “Biggest since Google” headlines. And at the time they were the biggest IPOs in the sector since Google … not the best businesses, obviously, nor the biggest technological advancements, but the companies that got the highest valuation from the stock market.

So yes, that’s enough for us to figure out who this company is … but we’ll keep you in suspense for just a moment longer while we excerpt a few more of the clues from the ad about this company’s businesses:

“Business Segment #1: 74 million Americans just like you and me

“People of all ages who are looking for a better job, to meet new business partners, or to find employees who are a perfect fit for their company. The more of them that join, the more that others want to join too, and the more incentive they all have to keep using it, and to pay for premium features. That’s called the ‘network effect’ and it’s been the engine of growth for every business from AT&T in the 1920s to Microsoft in the 1990s to Facebook in the 2010s.

“Business Segment #2: Madison Avenue

“As Google has proven with its great success in recent years, the ‘Mad Men’ era of advertising is over. Today’s Don Drapers use ‘narrow-casting’ opportunities instead of mass media broadcasting to get more bang for their buck. And they also cherry pick their best customers… like this company’s users, who average more than $100,000 a year in income. Advertisers will pay almost anything to get access to folks like that.

“Business Segment #3: The global ‘war’ for high-tech talent

“Better employees with better skills and better fit mean more profit. But some of the top talent is ‘hidden’… in other countries, in employees who aren’t actively job-searching but would jump at a compelling offer, or in traditional résumés that emphasize college old-boy networks instead of actual money-making skills.

“The Economist calls it ‘the battle for brainpower.’ McKinsey Consulting calls it “the global war for talent.” But whatever you call it, it’s what will separate great businesses from bankrupt ones in the decades to come, and our Rule Breaker stock is the best ‘pure play’ out there for investing in it.”

So who is it? Yes, the Thinkolator confirms that the stock Jeremy Phillips is betting big on is LinkedIn (LNKD), the professional-focused social networking service that’s also building a recruiting “matchmaking” business on the backs of their 200 million or so members.

You’ve probably heard LinkedIn talked up before — as the social networking company with a business model, a contrast to Facebook’s “gather a billion people then we’ll figure out how to turn that into a business” strategy. There’s a lot of money in employment advertising, as we found when Craigslist, CareerBuilder and Monster.com started to sound the death knell for newspaper help wanted ads several years ago.

Is it enough money to make LinkedIn a great business? Well, I’m sure Jeremy Phillips and the Gardner brothers know LinkedIn far better than I do — the ad says that Dave Gardner has recommended the stock twice, and that Tom Gardner personally has it as his largest stock position, and it’s true that in the past when Dave (Mr. Growth) and Tom (Mr. Value) have agreed on a stock, it has often done very, very well.

Me? I don’t like LinkedIn. That’s just a personal response to the product — I have used it a bit, I find it to be of little value and it seems to me to be full of the bland interview chatter and irritating impersonal connection-making that you see in any networking cocktail party. I also don’t like the cocktail parties, despite my fondness for cocktails.

But that has nothing to do with whether LinkedIn is a good investment, it just means I’ve never gotten around to using it very much and I’ve not felt compelled to really examine it as an investment.

LinkedIn does report this week (though according to Yahoo Finance it’s actually on Thursday, not Wednesday morning as the teaser suggests), and it is growing like gangbusters — but it’s also really, really, really expensive by almost any valuation metric you can come up with. That’s a positive criteria for the Rule Breakers service, they like to pick stocks that the conventional media thinks are overvalued, because most great market-changing growth stocks have been called “too expensive” by the financial media at some point… and philosophically I can understand that, but it still makes it really, really hard for me to buy stocks that carry a forward PE of 100.

If they can keep up this earnings growth, they may well be able to grow into that kind of valuation — they’ve just about doubled earnings in almost every quarter they’ve reported as a public company (they went public in the Spring of 2011), and the stock has more than doubled since the IPO (the IPO priced at $45 but the stock doubled on that first day, it has since been volatile traded down to about $60, but not for long, and is now above $120).

The basic business (I don’t use it, remember) is to help people make professional connections — sharing resumes and networking tips instead of going on Facebook to share pictures of cute cats and drunk teenagers. And it apparently works quite well, they can indeed sell to three different distinct groups: Advertisers who want to reach well-paid professionals, job-seekers who want upgraded memberships to help with resume building and connection-making, and recruiting officers who want to find qualified employees. So there is a great business case to be made for the company, and a reasonable projection that they could become an even bigger player in the HR and recruiting business … I just have no idea whether it can or will grow big enough, fast enough, to justify the current valuation. For that, you’ll have to make your own call.

If recruiting is indeed a $130 billion business, which sounds like a reasonable estimate (you can get different estimates from different folks in the personnel business, but it is a big sector), and you think that LNKD can become a real linchpin of the business, then there’s certainly enough money out there for them to become far larger — it’s a $13 billion business right now (that’s the market capitalization), with less than a billion dollars in annual revenue, so there is a big potential runway.

The free summary of Morningstar’s take on this stock sums up my initial reaction to the company pretty well:

“In the market for social networking, no company currently monetizes its user base better than LinkedIn. With an attractive business model and a user base that may never leave, this wide-moat firm is one of the few social Internet companies to truly hold a defensible position, in our view. We hope the market’s unbridled optimism subsides and the stock becomes cheap enough for us to recommend.”

So that’s how I’m feeling after my few minutes of checking out LNKD — great business, too expensive even after reliably doubling their earnings nearly every quarter. How about you? What do you think about LNKD or about the LinkedIn services? Ready to ride this to the next great internet fortune, or will it end up disappointing those who bought in with unbridled optimism? Let us know with a comment below


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Mikavexo
Guest
Mikavexo

Love LinkedIn, but wouldn’t buy the stock. Way to expensive for my budget. Of course, I’m a beginner with a monthly investing budget of less than $200. What would be nice is for someone to come out with a program for people like me, the kind that doesn’t have “Just a simple 10k investment” money.

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Scott Richards
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Scott Richards

Mikavexo:
Check out Sharebuilder.com for a way to purchase smaller numbers of shares in an economical manner. If they have a minimum account size, it is probably small and they specialize in providing access to small lots of stocks.

Smknheat
Guest
Smknheat

Ditto on Sharebuilder. I love it and have built my portfolio up to a respectable amount starting with nothing last January.

Scott
Guest
Scott

I looked at Shareholder and like what it offers, but looked some more and found Folio Investing located at https://www.folioinvesting.com/. I have built my own mini mutual funds and am enjoying watching them grow and making annual adjustments.

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rkatz0
Member
👍5

If I bought LinkedIn I would feel like I was gambling.

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glawson
Member
👍0
glawson

Yes, I think you got it correct. Let’s update for June…

Matt
Guest
Matt

How bout a December update…trading at roughly $125 at the time this article was written. Now, trading at roughly $230

Andrea
Guest
Andrea

I am also listed on LinkedIn. and have been for years, I never get any decent responses from there, NOR any decent “connections” to amount to that proverbial ” hill of beans”. I do not find it useful either, and don’t see how this will help anybody come up with ” connections” that will make them employed or “in business” profitably. I found that most are “posers” and “pretenders”. I shall not be investing in LinkedIn, It sounds to me as if (like FB) they will go IPO, and cash out( and move to Belize ). and leave it to… Read More »

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Kyle James
Guest
Kyle James

I am with you Travis. I believe but think that it is priced for perfection. I also feel like they abuse me with email attempting to upsell me. I feel fairly certain these campaigns help their growth a ton but at some point people are going to push back and call them all spam. Also I have never found their group feature to be nothing but annoying.

Zaydac
Guest
Zaydac

Me too

Randy Beltz
Guest
Randy Beltz

Me three!

Penny
Guest
Penny

Are you talking about Motley Fool or LinkedIn trying to upsell you? MF’s sales pitches are annoyingly insistent, but they do have an exemplary, super-fast refund policy if you want to try out one of their higher-priced services and found out that it isn’t the right thing for you. Just read the fine print on what to sign up for. I’ve been a member of LinkedIn for several years and find it great for keeping in contact with my former co-workers. It can be a bit of a mutual-admiration society. I also own shares (as recommended by MF) but only… Read More »

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Jeff Tatus
Guest

I am down w/Travis and Kyle on this stock and am late to the party on this. If I would’ve had a chance to own some at the beginning… maybe. But the one thing that confounds me no end is their incessant pitch for me to provide them with my “contacts” so that they can SPAM people who I’ve worked hard to get to know; people I can contact all at once using my Gmail account. What can they do that I can’t already do with my contacts. They put up people like Richard Branson and the soup of the… Read More »

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savethemanatee
Irregular
👍2289
savethemanatee

I’m personally not attracted to companies whose business plan revolves around advertising revenue and user subscriptions, so I have no interest in LinkedIn (or Facebook, for that matter). I think that this sort of business is relatively easy to replicate, and, as technology improves, it is far easier for a new entrant to take advantage of and implement that new technology than it is for current market leaders to overhaul their entire existing platforms. Maybe I’m wrong, but I think that it is just as likely that LinkedIn no longer exists in ten years or is a niche player as… Read More »

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Johnny Colorado
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Johnny Colorado

I thought bought buying when it went public. $80 something. Im on Linkedin, with a basic account. It’s another social networking site. I couldn’t even tell you if they have advertising?
How do they make their $? Unless I bet an invite, I don’t even bother. But when I had a Facebook account, I was hooked. There is nothing Linkedin has I need or want, so how is this a good business model? I think Facebook has more potential personally.

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Jon
Guest
Jon

It being a good business model has very little to do with whether or not YOU find it useful. If a good portion of the 200M users find it useful, click on ads, or buy the subscription, then it may be a good stock. It’s easy to make the mistake in stock picking that, if i don’t like something, it must not be a good stock. Sometimes that can be helpful but often times not.

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William Meredith
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William Meredith

Love to chime in on this one. I am on LNKD myself, but find it irritating at best, and mostly useless. It is a stupid product with worthless pumped up inaccurate information about people you don’t want to be bothered by, truly. I get annoying pop ups from LNKD every once in a while from people who are soliciting me, and even when I try to respond to keep them from hounding me, the LNKD system is a pain in the ass to have to deal with. Forget this Motley Fool recommendation, short LNKD and go the other way with… Read More »

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Kevin
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Kevin

Well, I guess that is why they are the experts, and you are not.
Since the time of the above post to now, the stock has almost doubled, from $120 to $219. And now the fool crew is running the same ad again.

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webmind
Member
👍27
webmind

That was after hitting $250. Funny how the “rulebreakers” prove everyone wrong, including everyone on this board.

Roger Bond
Guest

I have barely used Linked In and, like other services, can’t figure out how to do the simple things I want to do with it and thereby give up quickly.

Everyone HAS a linked in account, but how many USE it?

The way many stocks have been going, this COULD BE (I would NOT do it myself) a short opportunity – buy on rumor, sell on news. And as you have pointed out, if they disappoint, look out.

Roger.

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chuck
Guest
chuck

While am on both Linkedin and Facebook; find both of limited personal value; and would not, at current numbers, consider investing in either, or in Google. Looked up Linkedin, Google, and Facebook for price and P/E. Google is $775 and 24; Linkedin is 123 and 805; and Facebook is $28 and 2880, respectively. These stocks are for expensive gambling rather than investing,

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rkatz0
Member
👍5

@chuck – This is the kind of language we need to hear (heed) more of! Thanks!

Rick H.
Guest
Rick H.

Wow. Bet you all wish you can go back in time. You would all be pretty rich.

Mat
Guest

From Feb 4th 2013, where Chuck says GOOG was at $775, LNKD at $123, and FB at $28. To Feb 2nd 2014, and even with the small crash that’s greatly affected nearly every big name company recently, FB is at $61, LNKD is at $215, and GOOG; after dropping nearly $50 A SHARE (in one day), is still at; $1133.

I’m not a fan, or a target demographic of any of the companies listed, but anticipating people’s need to create the illusion of relationships through technology would’ve damn near doubled your money. Hindsight is 20/20 though.

Mat
Guest

*Feb 3rd, 2014, not Feb 2nd, my mistake.

bette
Member
👍0
bette

Well put Chuck!

steve
Guest
steve

Don’t use Linked-in much either, but know people who do.
I don’t see why Google+ or Facebook couldn’t offer all of Linked-in’s features and more. Both let you classify your connections to limit what people see. I’m not a programmer, but i don’t see why link-ed couldn’t be easily added to G+ or FB? And if it could it makes LNKD a very risky investment.
Anyone have any thoughts on this?

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Roger Bond
Guest

Google is doing just that with Google Plus

John Harris
Guest
John Harris

I hate Linkedin (and facebook too). From what I can gather, Linkedin hijacks your outlook contact list and sends them all an invitation from you to join. I got numerous invitations from people I had corresponded with for business, but none of them said they sent me or intended to send me an invitation. So I distrust Linkedin and refuse to join or have anything to do with them. I do have to admit I initially did join facebook as a way to interact with my two daughters living in other states, but I quickly found what was on Facebook… Read More »

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Jim Wood
Guest
Jim Wood

Like John, I joined Facebook to keep in touch with relatives, especially when they are traveling. I found the way to do it was to have a Group for them only. When I open up Facebook, I open up their group, review what I see, and log off. — I would never invest in these networks, however. As others have said, it’s too much like gambling. And who knows what the next fad that will replace these networks will be?

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glawson
Member
👍0
glawson

Curious so what happened with gasfrac?

olivan leach
Guest

My daughter put me on Linkedin I guess you would say . I don’t use it any way. Any way I don’t even do Facebook so as far as I know its all a pile of crap. I can say that most of you seem to have it right it looks like gambling to me. If and thats a big if just one of these ole boys who sends out the end of world stuff that the market is going to 6000 and lower I can see these kind of stocks going to zip o. I think i’ll keep my… Read More »

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Raven
Guest

My, amazing number of comments and agree with all of them. I joined linked in when it first raised its head and other than a continual barrage of emails regarding people I should link to (for what???) it hasn’t done anything. I think that most just “collect” people.
Very strange.

Ed
Member
👍15
Ed

Comment above: ” Linkedin hijacks your outlook contact list and sends them all an invitation from you to join. I got numerous invitations from people I had corresponded with for business, but none of them said they sent me or intended to send me an invitation.” That was exactly my experience also, only they grabbed my Entourage list instead of Outlook’s. A couple of class action lawsuits should already have made compost out of these “social media” scammers, if citizens still had a government that represented them instead of corporate donors.

ron james
Guest
ron james

Travis, What gives with Nick Hodges (Energy & Capital) Absaolute Black:???

Thane
Guest
Thane

I jumped on a bunch of social networking and gaming stocks for my sons’ education accounts. I figured… what the heck… try $500-1000 on each of these stocks and see how it goes. FB – underwater and still holding. ZNGA – dumped it after losing about 50%. P – dumped after roller coaster. LNKD – the only one of the 4 that has made money. Been on the ride from around $90 a share. If FOOL is in, I might go buy another 10 shares. But I sure aint risking $117,000.

Neal Fitzpatrick
Guest

I agree with Andrea…little use unless you want to e hired by some of the worst frims in the USA who can’t hang on to an employee….

proudgrampa
Guest
proudgrampa

Well, I hope Mr. Phillips gets most of his money back.

MadCow
Guest
MadCow

Wow! I don’t have LinkedIn or Facebook accounts, and don’t miss them. It must be the non-investing generation that uses these things, since all the comments from the investing generation are so negative.

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Roger Q Callaway
Guest
Roger Q Callaway

Facebook’s main useful use is for groups of friends to keep track of each other, so they can decide where they should meet to drink.

Irwin ironstone
Guest
Irwin ironstone

I was on it today. I would who I was looking for, but could not send an email to her. also, I could not leave a message. I then got off, po’ed went to the net, got her business address, and sent her an email and got a response in 2 hours or less. And they wanted me to pay for an email to her???
after I typed in an email, then they ask… just got me more upset. If that is their business model… it is missing something..

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Tom Steele
Guest

So if I’m reading this right, everyone here thinks Facebook is for finding drinking buddies and linked in is less than useless? But even though none of you use them, you feel very qualified to comment on their value as stocks and to discern whether their business models are going to be profitable? Interesting… It is particularly odd to me, as I use fb personally to keep up with friends and family, and while I don’t use linked in as a recruiting tool, I do use it frequently to find local business people to do business with in various projects.… Read More »

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Roger Bond
Guest

Tom, [I had a Tom Steele as a teacher MANY years ago, great guy] It’s refreshing to see a post like yours which is: – Well a