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Was reading over some old LinkedIn IPO press coverage and noticed some drastically different P/E ratios being reported. Note: I know that CBS uses the $45 IPO price and ZH uses the $83 opening price. My question is regarding how even if you swap the numbers they still do not come close.

  • ZeroHedge: P/E = ($83 per share) / (???) = 980 (don't really understand their numbers)
  • CBS: P/E = ($45 per share) / ($0.17 earnings per share) = 265
    • Seems consistent with [1], [2]
  • Random Quora post: P/E = 1000 for share price of $70-80 (no further details)
  • My own back-of-envelope calculation: P/E = ($83 per share) / ($15.4M earnings / 94.5M shares) = 510 (using the CBS earnings figure)

FWIW, today it's 880.

Anyone understand why these numbers are different? Would really appreciate a step-by-step breakdown of how to arrive at those numbers, for dummies.

  • There's a thing about companies with 100+ P/Es that makes the actual number meaningless. The difference between 100 and 1000 is far less than say 10 to 20. – JTP - Apologise to Monica Apr 26 '12 at 18:49
  • @JoeTaxpayer This sounds interesting, can you elaborate? Is it because you feel the earnings numbers are too low to make the ratio (which tends to infinity as earnings approach 0) meaningless? Is there an alternative metric that's similar in spirit to P/E but more robust for this case? – xyz Apr 26 '12 at 20:37
  • I think that the idea that a P/E of say 200 has any meaning when it's the result of .02 earnings per share is silly. One would need to look more at the full earnings report to understand what the potential is years out. Yes, low earnings per share create crazy P/Es, I'm not an analyst, but there are other metrics to look at. – JTP - Apologise to Monica Apr 27 '12 at 1:48
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The user who wrote the Zerohedge item:

  • Earnings: $8 Million
  • Shares: $94.5 Million
  • Price: $83 per share
  • Earnings: 0.085 per share
  • Calculated PE: $980

The CBS article:

  • Earnings: $16 Million
  • Shares: $94.5 Million
  • Price: $45 per share estimated start buut quickly doubled
  • Earnings: 0.17 per share
  • Calculated PE: $265

The Quora estimate is similar to the Zerohedge one (estimated a round value of 1000 PE and a price of 70-80). Note that it was 30 days after the first 2 items you quoted.

You used the CBS numbers except you used the zerohedge price.

It depends on which earnings were for each calculation. Past or future. The CBS numbers make the most sense because you can trace where they come from based on the links in their article.

CBS based their price on the estimates made the day before the stock went on sale. The price in the zerohedge item was based on the early trading numbers.

  • Thanks for the response, but I did already see these numbers. My question is more: how can the PEs between CBS & ZH be so different, even if you swap the share prices? (I know ZH used the opening price & CBS used the IPO price.) The difference seems to stem from the drastically different earnings figures. Why does ZH cite $8M and CBS cite $16M? If you can clarify this I will mark your answer accepted. – xyz Apr 26 '12 at 20:29
  • To know why you will have to ask the person who wrote an entry on the ZH forum, where they got their numbers. When a company reports profits they can use different standards: annual, quarterly, monthly, EBITDA, EBITDAR, gross profit.... – mhoran_psprep Apr 26 '12 at 21:04

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