News flash: every company's stock value is based on demand for its stock. This is how the price for everything is set.
Maybe when we discover true stock-picking clairvoyance this will change and every stock's price will be based on its true future potential, but I wouldn't hold my breath waiting for this to happen anytime soon.
The demand however is based on "expert analysis" that suggests that LinkedIn is worth 4 billion dollars.
I don't have an issue with demand setting the price; I have an issue with that demand being justified by linking it back to the potential performance of the company in such a way that anyone with half a brain can seen is bordering on the ludicrous.
If the problem was limited to investors that were prepared to take risks and pay for their own loses that would be one thing. The issue I have is that when these things do come crashing down, it seems to hurt everyone but wall street.
It's also unsustainable. LinkedIn will never be worth however many billions of dollars it's valued at right now without a healthy does of speculation and fad-type demand.
They only made $15 MM last year. That's a perfectly acceptable profit and a well run company, but it is not billions of dollars.
Maybe when we discover true stock-picking clairvoyance this will change and every stock's price will be based on its true future potential, but I wouldn't hold my breath waiting for this to happen anytime soon.