Is LinkedIn Worth $1 Billion?

55 Comments

 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.

55 Comments

בועה 2.0 - Dotmad (on .Net)

[…] יותר אפילו לאור השווי שוק האדיר שנקבע לה. מצד שני כל הלהטוטים החשבונאיים לא מסתירים את העובדה שמדובר ברשת חברתית המתחרה ברשתות […]

WebbAlert - June 19, 2008 | TechTV Update

[…] one of the highest valuations for a networking site. Om Malik was initially shocked at that number, but after he did the math and compared it with Xing – a similar company – he found that Linked-In’s valuation is not out of line with the value […]

WebbAlert - June 19, 2008

[…] one of the highest valuations for a networking site. Om Malik was initially shocked at that number, but after he did the math and compared it with Xing – a similar company – he found that Linked-In’s valuation is not out of line with the value […]

Tom OKeefe

Based on revenues of $100 million (with zero costs) LinkedIn is valued (according to Bizak Calculator) at $399,999,984 – 40% lower than their recent valuation of $1 billion.
Using the Bizak Calculator with 20 million subscribers you get earnings of $0.42 per subscriber. Computing EPV for the 5.6 million active visitors then LinkedIn earns $1.49 per visitor.

As we know Facebook was recently valued at $15 billion. The Facebook valuation may be a bit extreme but they’re a premium brand that will be a force for years to come. LinkedIn on the other hand is not a premium brand, however I assume that LinkedIn will be easier to monetize than Facebook. The main reason being LinkedIn knows my entire work history whereas Facebook only knows who my friends are. With my work history Bain likely has a iron clad plan to convert my connections into a cash cow for LinkedIn. However, even with this profitability I don’t think LinkedIn will ever become a premium internet brand, but they’re probable a safer bet for investors.

http://tomokeefe.com/

YUvamani

Check out Monsters valuation: 2.65 billion (http://finance.google.com/finance?client=ob&q=NASDAQ:MNST).

LinkedIn may be many things for many people but its main revenue / profit source is going to be head hunters / recruiters and jobs. Advertising is promising, But as most people in this thread have said, they do not visit it regularly enough to monetize it.

Thus as compared to monster, LinkedIn is a source of “higher” quality resumes than monster, but definitely lower volume. Thus the valuation is not completely out of place. Linked In does not monetize like monster does, But then it is still a startup and has chance to experiment…

Facebook and LinkedIn have similar problems in monetizing. I get some good quality job leads from linked in and I assume those recruiters pay linked in .. However the best jobs are usually found because that old colleague is now in this promising new company etc … Activities for which I use linked in but for which linked in got nothing. (I buy products because of friends which may go through a facebook wall or a message or a IM , but facebook does not / cannot monetize that easily especially after the beacon brouhaha)

Adwait Ullal

The *concept* might be worth a billion but does the *platform* perform to merit that valuation?

I think not.

In the last six months, members with large networks (‘000+ connections) could not browse their OWN connections or accept invitations without receiving some kind of errors.

Now that it was raising money, LinkedIn has cleaned up some of it’s act but the experience of the last six to eight months has a left a bad taste. Going forward, members might no longer be willing to invest time on a platform that is suspectible to collapse at any time.

Karl S.

Yeah. It’s definitely overvalued.

The cynical side of me says, there is probably a sale in the works there. Or, that valuation was purposely set high so that no one would try to buy them.

Full disclosure, I use LinkedIn almost daily (professional branding professional). It’s a tool for me and for many sales professionals that I know. And it is a much better business platform than any of the other social networking sites.

However, in the 18 or so months since their last investmentm the quality of the product has gone downhill. Many of the heavy users – the people with 3,000, 4,000, and 5,000 and more people in their network – have started to complain. The number of errors I get is surprising (and LI management claims its because of the size of my 3,500+ network).

If I were LI, especially with that new cash, I’d be reaching out to those heavy users to ask them what they need and want, otherwise they’ll be looking to go elsewhere.

insider

hmmm. $1 billion valuation is 10X forward-12 month-revenues.

i would never call that a bargain

Hell, Google currently trades at about 6X forward-12-month-revenues!

(That is, assuming 1) today’s $180 billion market cap, and 2) that revenue grows 1.5X in forward 12-months, as has occurred over trailing 12 months.)

This is VC portfolio management pure and simple — a relatively small amount of dough allocated to big-bang “momentum” play –not value or analytics driven investing. This is bubble money betting on the bubble, and on a return to frothy internet IPOs.

Stuart Meyler

It is clearly overvalued, as are all social networking sites at this point. That said, I will say LinkedIn is an attractive platform as a marketer (full disclosure: marketing agency executive). We have run several programs on LinkedIn and the audience is really, really worthwhile for premium segments. Great response, very efficient. I cannot say the same for other social networks, and their inability to secure advertiser dollars speaks to others experience there as well. Oh, and spare me the widgets/applications pitch.

Most social network members are suffering a severe case of “applathy” at this point. When was the last time you installed something on Facebook?

Comments are closed.