As you can see from the chart below, it appears as if the gravity of fundamentals is slowly returning to the markets. Linkedin is trading at nearly half of its IPO high, reference "LinkedIn Shares Debut With A Near 100% Pop In Price, Annualized PE Over 1,000!!! Next Question, Whose Gonna Write Me Those Bubble Puts???" Many believed this to be too high, but BoomBustBlog attempted to meticulously demonstrate how high is too high.

Although the puts written on LNKD were ridiculously overpriced, 24 to 72 hours worth of patience would have seen the IV shrink, bringing them within a profitable price range. So far on the puts we see 20 to 30% ROI, unlevered. You would have done better with a straight short, provided you could have gained access to the shares to borrow without getting ripped off on the borrow!

In the post "A Realistic Forensic Valuation of LinkedIn – There Ain’t No Surprises Here…" of Monday, May 23rd, 2011 we offered a full valuation of LNKD, and as you can see we were right on the money - as excerpted:

You see, fundamental analysis still works - and it works well. Double to triple your money simply buy counting the numbers... Click  the graphic below to enlarge. This is at least the 2nd time my subscribers have dipped into this well to pull out bearish honey instead of water!

As excerpted from Research in Motion Drops 10% After Hours, Precisely As We Warned Two Months Ago – MARGIN COMPRESSION!!! Thursday, March 24th, 2011 (I also warned again in April - Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute! Friday, April 29th, 2011):

On January 20th, I posted "Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM’s Share Price Spikes: Is It Time To Revisit the Bear Thesis?". I turned bearish on RIM last summer and made some money on its dip back then. Shortly afterward, its shares did the QE thing, despite the fact Android started sucking up market share everywhere while simultaneously squeezing margins like orange juice. As excerpted from the aforementioned post:

We have updated our mobile OS and handset manufacturer market share model and will make it available to subscribers as an online app by next week. In the meantime, let’s review some of the findings – vendor by vendor. First up is Research in Motion. This was a profitable short in 2010, with the share price hitting our targets within 100 pennies. Since then, the stock has risen appreciably. Let’s take a look to see if the rise was justified.

Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 -  RIMM Forensic Analysis and Valuation – Professional & Institutional or RIMM Forensic Analysis and Valuation – Retail) clearly stated that while we expected RIMM’s handset shipments to rise as a result of a rapidly expanding smartphone market, it will lose considerable market share....

A few months ago, I had a discussion on BoomBustBlog regarding security and Apple products. Basically it was my attempting to illustrate to acolytes that ANY system can be compromised and the sole reason for Windows disproportionate virus/malware attacks is due to the high profile of Windows machines. Microsoft is, despite being unfavored in the press, still the predominant technology provider to the consumer and corporate desktop, and arguably to the enterprise server as well. If one wants to make as big a splash as possible in terms of disruption, whom do you target - Microsoft, Ubuntu - Linux, or Apple?

Well, now that Apple is moving into the big time in terms of users and mindshare, it is also moving into the sight's of virus/malware developers. One of the Apple Corporation's marketing department's biggest sticking points is its lack of malware of viruses. Of course, the less technically inclined, or the more marketing department susceptible (depending on how you look at it) are inclined to believe that line over the explanation that I gave above - despite the fact that I hacked my iPad in under 10 seconds by surfing to a web page and clicking a graphic.

Then we have the recent (and still ongoing) month-long Mac Defender/Mac Guard malware attack which targeted Apple desktops and notebooks. It took a considerable amount of time for Apple to respond with a solution. Once they did, they apparently tried to do so comprehensively by delivering as excerpted from ZDNet:

From Mashable: Nokia’s Freefall Continues

Competition from Apple and Google has prompted Nokia to downgrade its second-quarter sales projections, sending its stock price down as much as 13% Tuesday morning.

Nokia released a statement Tuesday warning net sales for its devices and services unit will be “substantially” lower than the previous estimate of €6.1 billion to €6.6 billion ($8.8 billion to $9.5 billion). The shortfall was blamed on lower average selling prices and decreased volumes of handset sales.

Nokia’s warning comes as the company increasingly finds itself losing market share to Apple’s iOS-based smartphones and models based on Google’s Android OS. Android overtook Symbian, Nokia’s OS, as the most popular smartphone platform in the fourth quarter of 2010, according to researcher Canalys.

This is actually just the beginning for Nokia. The competition is starting to truly intensify. I explained yesterday that Apple came up with an innovative idea in 2001 to reinvent staid matured products in minimalist, easy to use, sexy fashion. They wrapped the products in a profitable ecosytem designed to build consumer lock-in and to create a barrier to entry to competitors. For some obscene reason having to do with big companies making so much money that they don't realize threats until the lunch money has already been confiscated, Apple did not have any credible challenges to this methodology for 7 years until Google bought Android. From that point on, Google enabled the famed BCG-practiced "core competency"  phenomenon, as excerpted from Wikipedia:

A core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

A BoomBustBlog reader forwarded me the following news item this morning:

9:44 AM Android's (GOOG) lead over Apple's (AAPL) iOS may have stopped growing, as new Nielsen figures indicate a "stalemate" in the U.S. smartphone battle among Google, Apple and RIM (RIMM). After shooting to the top spot in under a year, Google holds steady at 36% of the market; Apple and RIM remain at 26% and 23% respectively.

I strongly suggest my readers look a bit deeper into this than is suggested by this news clip. Android is set to explode. The numbers above are lagged and count smartphones only. In addition, Apple's market share benefited greatly from its launch on the Verizon Network, the 2nd largest in the US. That is something that cannot be repeated (although it will also benefit to  a much lesser degree from distribution through Sprint and T-mobile as well). Meanwhile, the Samsung Galaxy IIs running Android is actually outselling the iPhone globally, isn't even for sale yet in N. America which is the deepest, richest smartphone market. It set sales records in Korea where it was launched selling over 1 million phones in 30 days or less.

Then there are the tablets, where Honeycomb is coming into its own. The Samsung Tab 10.1 is in significant demand and has yet to launch, and the Asus Transformer sells out within hours of any retailer getting supply. I have the Asus and it blows the pant off of my iPad and offers a very, very serious cost/benefit challenge to all of my wintel wares (see the video comparisons here - I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression). Have no doubt, the power of the Wintel Duopoly is materially threatened by Android. The Android hardware platform is due to quadruple in performance by the 4th quarter! In addition, the hardware vendors - after being freed from trying to develop an OS/ecosystem or shoehorn Windows into ultraportable devices - have truly started innovating with form factors.

Reference the extremely unique and innovative form factors that have been, and are about to be released - form factors which literally solve real world usability issues:

Oh, this is getting good. For those investors and technology consumers who feel emotional attachment to publicly traded C corporations, brace your ass hairs, 'cause the truth is about to come barging out of your screen. Yesterday I posted the most recent of a long string of articles detailing the impending and inevitable margin compression coming to Apple. It is my opinion that the analysis and the logic behind the analysis is unassailable. Granted, most of the analysis is behind a paywall, but the logic is laid bare for all to see,  as excerpted:

Last week I posed the question, “Is The Evidence For An Apple Margin Collapse Now Incontrovertible?“. I received some interesting, albeit, rather passionate answers - many of which failed to address the core core issue, which is can "Apple compete with the rapidly rising technological bar that is simultaneously facing rapidly dropping prices without suffering a hit to margins?".  Phrased differently, "Can Apple’s brand allow it to charge materially more for less product in the face of over 400 competing devices connected by the fastest growing and most diverse ecosystem in the business?" Sounds like a tough sell, doesn’t it? This is not about who is better, who is worse, who will win, and who will lose. It is about margins. Apple may not even be in the race if it doesn’t run, and to run may very well mean margin compression.

Well, if margin compression wasn’t “Incontrovertible” last week, it certainly should be this week. Let’s walk through margin compression as a result of excessive competition step-by-step, starting by solidifying the thesis behind the recommended updates to the Apple Margin Compression Thesis & Google’s valuation model. Subscribers, adjust your BoomBustBlog Valuation Models Accordingly:

• Apple – Competition and Cost Structure Forensic Analysis and accompanying Apple iPhone Profit Margin Scenario Analysis Model – suggested use with Apple Earnings Guidance Analysis

Okay, Reggie says "Margin Compression"., What does the most esteemed of the esteemed of Sell Side Wall Street say? Let's reference that Bastion of UnProfitable Advice, Goldman Sachs!

Last week I posed the question, "Is The Evidence For An Apple Margin Collapse Now Incontrovertible?". I received some interesting, albeit rather passionate answers, many of which failed to address the core core issue, which is can Apple compete with the rapidly rising technological bar that is simultaneously facing rapidly dropping prices without suffering a hit to margins. Phrased differently, can Apple's brand allow it to charge materially more for less product in the face of over 400 competing devices connected by the fastest growing and most diverse ecosystem in the business? Sounds like a tough sell, doesn't it? This is not about who is better, who is worse, who will win, and who will lose. It is about margins. Apple may not eve be in the race if it doesn't run, and to run may very well mean margin compression.

Well, if margin compression wasn't "Incontrovertible" last week, it certainly should be this week. Let's walk through margin compression as a result of excessive competition step-by-step, starting by solidifying the thesis behind the recommended updates to the Apple Margin Compression Thesis & Google's valuation model. Subscribers, adjust your BoomBustBlog Valuation Models Accordingly:

1. Apple – Competition and Cost Structure Forensic Analysis and accompanying Apple iPhone Profit Margin Scenario Analysis Model - suggested use with Apple Earnings Guidance Analysis
2. Google Final Report and the accompanying Google Valuation Model (pro/institutional subscribers)

Apple's iPhone launch on Verizon did a lot to boost market share, reference Apple chews away at Nokia, posts best smartphone share growth in Q1 and Android increases smart phone market leadership with 35% share. It's success was enough to push it to 2nd place in terms of US handset vendors and 3rd place globally. Despite this success, it is still losing considerable ground to Google's Android, reference Even With Apple’s Successful Launch On Verizon, Google Continues To Increase It’s Lead In The Smarthphone Space Friday, May 6th, 2011, and Google’s Android Market Share Explodes As It Expands Its Reach To Cars, Toys, Home Automation, Music & Movies – All In The Cloud Wednesday, May 11th, 2011 Verizon’s Earnings Confirm The Economic Impact of Android vs iPhone In Regards To Carrier Profitability Thursday, April 21st, 2011.

Many don't realize why the amassing of significant dominance in market share makes such a difference. Basically, its the reason why Apple has historically been able to charge a premium (although not currently due to Android - high end Android phones are either at par or slightly more expensive than the iPhone yet Android's market share increases at en ever more rapid pace). Apple's key advantage lies in the network effect stemming from majority market share (embedded in its iTunes and app store ecosystems). Wikipedia on the Network Effect:

Technology Bubbliciousness Is Back With A Vengeance!

LinkedIn (LNKD) went public with an absolutely unrealistic valuation that illustrates the dangers of ZIRP policy that has carried on for too long. The marketing machinations of investment banks combined with a total lack of respect for risk and the cost of capital has allowed such to happen – and we all know how this is going to end!

In 2010 LinkedIn generated $15m of PAT (profit after taxes) as quoted by the popular financial media. But that’s PAT. What the media and pop media readers are forgetting is what’s available to common share holders, you know the guys holding that stuff trading on the exchanges. LinkedIn has total redeemable convertible preferred stock of 10.8m (4m Series C and 6.8m series D, Convertible preferred stock of 38m (17.2m series A and 17.5m Series B). After accounting $11m for undistributed earnings allocated to preferred stockholders the PAT attributable to common share holders was $3.4m. For those perpetual pessimists who are not well versed in calculating 5 digit PEs… The math already denotes LinkedIn trading at a PE of… well... I’m actually damn near embarrassed to print this… 29,000x.