GO
Loading...

Cramer's Take on 2 High-Flying Tech Companies

Friday, 20 May 2011 | 6:36 PM ET
Cramer Bullish on Wireless?
Wireless carriers across the globe are only just beginning to roll out their 4G networks, with Mad Money host Jim Cramer.

Cramer has long said that once the first social media company makes its initial public offering, valuations on stocks will be very rich. So rich that they'll make the current crop of high-flying Internet companies look cheap by comparison.

LinkedIn's IPO on Thursday was the first of those deals. Its stock soared and just as Cramer has expected, valuations on so-called expensive tech stocks, like Netflix or Salesforce.com , don’t seem so cheap anymore. Cramer thinks that’s why these stocks popped Friday. It's important to note the LinkedIn IPO because there will be a slew of other deals like it, including Facebook and Groupon.

LinkedIn generated $243.1 million in revenues last year, which means its trading at nearly 39 times trailing sales. It plans to double its revenues this year, however, which means it's trading at 20 times forward sales. Compared to LinkedIn , Cramer said Salesforce doesn't seem that expensive, as it's trading at 10 times forward sales. Cramer thinks Salesforce is a better company, though.

Salesforce is dominant in cloud-computing. Chatter, its social network for businesses, allows companies to connect and share information over the Internet in real-time. On Thursday, Cramer spoke with CEO Marc Benioff after Salesforce delivered strong quarterly results. The company raised its full-year outlook, as quarterly sales of its Web-based software surged. Salesforce has "dramatically accelerating" revenue growth, which Cramer said is unusual for a company this mature. He thinks the company has a lot of room to grow and said its stock could continue to go up.

Meanwhile, Netflix trades at just 4 times expected 2011 sales while LinkedIn trades at 20 times sales. Both companies use a subscription model, but only Netfilx requires every subscriber to pay. The king of streaming content over the Internet, Netflix is growing rather quickly. The stock has a lot of short interest and the analysts, who cover it aren't overly enthused either. Of the 28 analysts who cover it, only 12 have 'buy' ratings while 10 have a 'hold' and 6 are sellers. But Cramer thinks the company will continue to deliver and the analysts will have to change their mind.

What's the bottom line?

"LinkedIn may be absurdly over-valued, but it makes Salesforce.com and Netflix look cheap by comparison—one more reason why I think both of these great companies still are worth buying."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

  Price   Change %Change
CRM
---
NFLX
---
LINKEDIN
---

Contact Mad Money

  • Showtimes

    Monday - Friday 6p ET
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.