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Summary:

 The big news tonight is business social network LinkedIn raised $53 million in Series D funding at a valuation of $1 billion. The new round is led by Bain Capital (the same genius investors who also funded Vonage) brings the total money raised by the company […]

 The big news tonight is business social network LinkedIn raised $53 million in Series D funding at a valuation of $1 billion. The new round is led by Bain Capital (the same genius investors who also funded Vonage) brings the total money raised by the company to about $80 million. I wasn’t going to write about this, given everyone had already jumped on the story.

Anyway the valuation of $1 billion -not as insane as the valuation placed by Microsoft on Facebook – was jaw dropping. Sure, LinkedIn has more value than plain vanilla me-too social networks but is it really worth a billion dollars? I ended up doing some back-of-the-envelope calculations while watching Boston Celtics celebrate their 17th NBA Championships.

The question of over-valuation had first popped up when I read about this round in May 2008 on Venturebeat . Techcrunch then reported that Allen & Co, the New York bank was helping Reid Hoffman’s company raise fresh capital at the $1 billion valuation.

So I decided to do a back-of-the-envelope comparison with XING with some of the publicly available data on XING, a European Social Network that is publicly traded in Frankfurt. It is a pretty good proxy for a business-focused social network, such as LinkedIn.

It has a market capitalization of about $300 million. It has has 5.71 million subscribers. XING had revenues of around $11.6 million at the end of first quarter 2008; about 70 cents per month per subscriber. That works out to about $52.30 per subscriber. For sake of comparison, Facebook’s reported $15 billion valuation works out to $125 per subscriber.

If you use those numbers, then LinkedIn’s rumored 20 million users are worth $1.04 billion. The company is adding about 1.3 million new subscribers a month, so by those estimates it should end the year at around 29 million subscribers. USA Today reported that LinkedIn was on target to do between $75-to-$100 million in revenues this year. Lets be generous and assume that they indeed do $100 million that works out to about 29 cents per month per subscriber (assuming that the number of subscribers at the end of the year is about 29 million.)

My back-of-the-envelope calculations show that if your user the value per subscriber of then LinkedIn’s $1 billion got a market valuation. On per-subscriber revenue basis, LinkedIn seems a tad overvalued, especially considering that their traffic is range bound, and the number of active uniques is showing a slight slump.

What do you guys think?

Update: Connie Loizos of PE Hub is spot on in saying that this video of LinkedIn VCs self-congratulating themselves made her cringe. Me to Connie.

  1. I understand that Linked In has a lot of people with profiles on the site. But how many of those people visit the site everyday, every week? Everyone I know who has a Linked In profile has not been to the site in months. When I ask them what they’ve gotten out of it, they say nothing. How is Linked In supposed to make money out of that? I used to have a Linked In account but I closed it last year because people kept bugging me for endorsements and I was not getting anything out of it.

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  2. LinkedIn is worth the money, because of the audience, that is (partly) wealthy and willing to pay for the service. I think LinkedIn for some time (rightfully) feared Facebook, that could have become a free alternative. Now that people realize that Facebook (unwillingly) developed itself in the direction of MySpace, not LinkedIn, they will again be able to monetize their audience more efficiently.

    Once they push their subscriptions and sell better ads (themselves, not via ad networks), they’ll be able to monetize their audience very efficiently.
    I in fact think that LinkedIn could end up being more valuable than Facebook, if they can work monetization out. (Facebook grows like weed, but LinkedIn has a more valuable audience.)

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  3. That audience is one of the most sought after audiences advertisers are looking for. If they offered a social ads like network, the company I work for would spend thousands of dollars advertising on there. It would be an incredible place to advertise and get small business leads from.

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  4. It took me over a year from the time that I actually created a profile until the time that I finally came around to it and actually started adding folks and from there it’s been great to re-connect those I had previously lost contact with. It’s a great tool, and so far I haven’t found the need to pay anything, and don’t see the need for doing so in the future, either.

    I think per member Linkedin is far more valuable than Facebook. With Facebook it’s just about gargantuan volume.

    One problem I’ve always had is the number of folks who have duplicate profiles up there. I don’t know if this has changed but profiles need to be able to be deleted fairly easily otherwise Linkedin is just padding its stats.

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  5. The only value I get from LinkedIn is the ability to see a LinkedIn member’s professional history, assuming that the member decides to share that information. I am unsure of how valuable this information is. The most valuable aspects of a professional that I care about are honesty, quality, humility, reliability, productivity, ability to work well in a team, flexibility and creativity – LinkedIn does NOT help me evaluate these aspects and I do not believe that the Recommendation feature in LinkedIn gives me insight into these aspects of a professional.

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  6. Linkedins’ value can be even much more than 1 billion. Where they lack is a strong marketing campaign where Premium Membership is transformed into a status symbol. Also the heavy users (500+ people) should be granted free access to some kind of a status and free extra services (with their earned status). There should be a schema similar to Credit Card business.
    I am sure Linkedin has plans in these areas. I think these things are really hard to implement but doable in right hands. Hopefully, they will reach the right talent to make Linkedin the major player on social networks.

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  7. [...] hour ago Om Malik valued Linked in as $ 1 billion ( back of the envelope calculation based on users). I agree with [...]

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  8. I check LinkedIn at least twice a week. Their recommendations based on former employees make it easy to reach out to former coworkers and their ‘People you may know’ section has been eerily accurate.

    I think their real value is in recruiting and job posting, a la craigslist. The site helps eliminate some of the more tedious tasks when it comes to matching the right candidate to the right job. It also makes it more difficult for those who may be less honest to fool future employers.

    Job placement is a tricky business and LinkedIn helps to ease the process.

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  9. [...] mer här: LinkedIn gets its billion-dollar valuation, Is LinkedIn Worth $1 Billion?. Categories: Noteringar Tags: LinkedIn Leave a [...]

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  10. Most users have clearly segregated business contacts on Linked in and personal contacts like friends and family on Facebook. I am very regular at Linked In. I check / login to Linked In around 2 -3 time a a week and this is 100% more often than Face Book( I know I might be an exception). I now know that I will be using only 2 social networking sites for coming few years i.e. Facebook for personal networking and Linked In for business contacts.

    Given that its tough to monetize social networking site, Linked In still might be in better position to generate more revenues because of its utility for business development, hiring etc. Any service that is useful for business can be monetized..

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