LinkedIn Taking the Long Road to Riches

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Just before writing this blog posting I noticed an email from LinkedIn with small thumbnail photos of my 40 LinkedIn contacts that changed jobs in 2010, described by “Fortune” as “the best networking email that I will receive all year.”   I totally agree with Fortune magazine’s assessment, and it really underscores to me the value of being a long-term LinkedIn user.

All of this technology has a price tag, and now that LinkedIn has announced its intentions to sell its stock to the public for the first time, through their S-1 Report, which is available on EDGAR, the U.S. Government repository of public company financial filings.

For the first nine months of 2010, LinkedIn had revenue of $161 million, with 73% of this coming from its Hiring Solutions and Marketing Solutions lines of business, as the vast majority of its 90 million individual members (including me) continued to take advantage of LinkedIn’s free basic service.  Even with $161 million of revenue, LinkedIn had slightly negative free cash flow over this nine month period, as its $37 million of Cash Flow from Operations was offset by $40 million they invested back in the business, including investment to build out their data centers, technology hardware to support growth, and software to support website functionality development, which would include, I suppose, that email mentioned above.

To LinkedIn’s credit, they are flagging that their future growth will require substantial additional investment, and even have the courage to say in their S-1 that they do not expect to be profitable, on a GAAP basis, in 2011.  Adding one new member every second does not come cheap!  LinkedIn has a good lead in the professional networking space, but they may attract considerable competition from Facebook, Google, Microsoft, Twitter and others, all of which explains why they are going to the public markets for fresh equity investment, even thought they had nearly $90 million of cash on hand as of Sept. 30, 2010 – roughly equivalent to the amount of private investment they have taken in over the last few years.

By way of comparison to LinkedIn, Google was a cash cow even before their stock went public.  For example, in 2001, Google has revenue of $86 million and Cash Flow from Operations of $31 million, of which only $13 million had to be invested in property and equipment to support the business, with the balance invested in “short term investments.”   And Google maintained its positive cash flow characteristics even as its revenue exploded to $439 million in 2002 and exceeded $1.4 billion in 2003.

While LinkedIn is probably not the next Google from an investment standpoint, I do love being a member, and its management team appears to be the bringing the same degree of thoughtfulness to stewardship of the company, as they have in the past to evolution of LinkedIn’s functionality.

Reasons for Declining Small Business Bank Loans in New Hampshire Studied

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Small business bank lending in New Hampshire declined by 14%, or $314 million, since 2009, according to a study done for the New Hampshire Bankers Association by Brian Gottlob of PolEcon Research, the “Union Leader” reported.

Gottlob’s research found that the decline was due to both tighter credit policies at the banks, as well as decreased demand for loans by small businesses that were scaling back their growth plans and instead sought to pay down debt.   Loss of collateral value in small business owners’ homes and commercial real estate also had a negative impact on lending trends.    Gottlob’s findings echoed other studies that also have shown lower small business demand for loans has played a significant part in lower levels of bank loans during the current recession.

On a brighter note, New Hampshire’s community banks increased their lending by $70 million, or 4.6 percent in 2010, even as large national banks with limited local presence in the Granite State cut back.    New Hampshire’s overall 14% decline in bank lending to small businesses was better than the 22.1 % nationwide decline, according to Gottlob’s research, and “its more stable banking industry during this recession is one reason why NH suffered fewer economic and employment losses than occurred in a majority of states.”

Why Businesses go Bankrupt: CB Holding (Charlie Brown’s Restaurants)

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CB Holding, the company that owns restaurant chains Charlie Brown’s, Bugaboo Creek and The Office, filed for bankruptcy under Chapter 11 on Wednesday, November 17th.   CB Holding announced that it was closing nearly half of its restaurants, and is looking to sell its 39 remaining restaurants.  A CB spokesman told the “Newark Star Ledger” that the 29 closed restaurants were targeted for “under-performance” and that the company would work with the 2,300 displaced workers to “help them find jobs, both within and outside the company.”

The CB Holding bankruptcy petition states the company has assets of $100 – 500 million, and liabilities of $50 – $100 million, so there apparently was not an accounting insolvency (i.e., liabilities greater than assets) at the time of the filing, and it is not even clear from the reporting whether there was a technical insolvency (i.e., firm unable to meet its obligations.)   It appears likely that this was a strategic bankruptcy, planned by CB Holding’s principal owner, the private equity firm Trimaran, to enhance the restaurant chains’ value, prior to a sale.

One of the most famous strategic bankruptcies was Continental Airlines, which declared bankruptcy in 1983 so it could break its high cost union labor contracts, and more effectively compete with new non-union airlines, following the deregulation of the airline industry.   But Continental stayed in the airline business, while Trimaran is exiting from restaurants, as quietly as possible.   I agree with Fortune Magazine writer Dan Primack who recently wrote: “when you fire 2,000 workers workers without warning – in a lousy labor market to boot – then you should at least explain why it happened.”

Inside Job (the movie) is like Frontline on Steroids

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Whatever your current level of understanding of the current financial crisis, make plans to go see the movie Inside Job while it is still in the theaters, and you will be mesmerized, horrified and educated about the crisis’ root causes.

The research,  music, camerawork, editing, Matt Damon’s narration, and Charles Ferguson’s interviewing talents all make this a superb addition to the growing body of works explaining the current financial crisis.

Here are a couple of particularly compelling quotes from the film:

George Soros saying:  “[Former CitiBank CEO] Chuck Prince famously said we have to dance until the music stops.  Actually the music had stopped already when he said that.”

Director and interview Charles Ferguson asks “Why do you think there isn’t a more systematic investigation being undertaken?” and gets this answer from NYU professor Nouriel Roubini:   “Because then you would find the culprits!”

Italian AP Exam is Reinstated

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A week after her brother Andrew Cuomo was elected governor of New York, Dr. Margaret Cuomo was victorious in her multi-year struggle to have the College Board reinstate the Italian AP Exam, the “Wall Street Journal” reported.

In the four years that the Italian AP exam was previously offered, it fell short of the College Board’s target of 5,000 test takers per year, and as a result, it ran losses of $1.5 million per year.  Echoing their 2003 contribution of $300,000 to get the College Board to initiate the Italian AP exam in the first place,  the Italian government has once again stepped up, this time agreeing to pay the College Board half the cost to have the exam reinstated, provided the other half would be covered by Italian heritage groups, the Journal reported.

Since I blogged about the Italian AP exam back in May of this year, the College Board, which is a not-for-profit organization, has reported improved financial results. For the fiscal year ended 6/30/2009, the College Board’s revenue exceeding expenses by $53 million, with revenue of $623 million, and expenses of $570 million.  For the fiscal year ended 6/30/2008, revenue exceeded expense by $39 million.