LinkedIn, undervalued and underloved?
After examination of the data against peers, I believe LinkedIn is priced for great growth potential in the coming years. Don’t get me wrong, it’s an IPO and they can be very volatile. However, I prefer to make my investments in companies based on long-term outlook rather than speculate on short-term trading gains.
It is estimated that LinkedIn (NYSE: LNKD) will price at $42-$45 per share tomorrow, valuing the company at $4.1B which implies approximately 94.5M shares in float. Based on revenue over the past 4 quarters, this values LinkedIn at 14.1 times revenue (Price/Sales). Meanwhile, Facebook is valued at ~ 30 times revenue and Salesforce is priced at 10.5 times current year revenue. Examining the growth in revenue and trajectory of revenue growth, our estimates are that LNKD will be at ~ 8 times forward P/S at the end of 2011 and ~ 4 times forward P/S at the end of 2012 (based on the IPO pricing.) I find this amazing given the difficulty of another company encroaching upon LinkedIn’s 100M plus members and considering the many new revenue opportunities that await LinkedIn. One last interesting metric is per member valuation, LNKD is valued at ~$40/member while Facebook is valued at ~ $140/member (Facebook, $70B estimated value with ~ 500M active users.)
Now, I am not sure of what you think of LinkedIn, but I know companies and recruiters seeking the best employees LOVE it. In fact, many companies will pay bounties of $3,000-$30,000 per new employee to headhunters as the economy picks up. If LinkedIn captures just a few percent of this money, you can see how each member may be worth hundreds of dollars from just this one area, assuming people switch careers every 3-5 years. This doesn’t include their ad platform, their jobs platform, their ever-growing groups platform (where you actually know who you are talking with), their premium search and a multitude of media/shopping opportunities with magazines, newspapers and other e-commerce brands.
While Facebook gets all the love, I believe that LinkedIn has built a nearly impenetrable “moat”, preventing serious competitors for years to come. Don’t get me wrong, I don’t hate Facebook, I just think they have an easier moat to cross than LinkedIn. This is due to the fact that one’s personal life can easily be posted on another website in a matter of minutes, but entering all of your career contacts, jobs, descriptions, LinkedIn recommendations and more is a real pain.
Feel free to examine the growth of LinkedIn across various metrics over the past six quarters with this interactive dashboard. Data harvested and estimated based on their IPO filings, Google Finance and Facebook.com.
This data includes many estimates and extrapolations based on work by Freakalytics. This is not a stock solicitation. We are not investment advisers. All information presented here is for your review and consideration. You should consult and understand the filings at www.sec.gov before buying any stock, especially an IPO. We currently have no holdings in LinkedIn but plan to purchase shares after the first few days of public trading. We currently use LinkedIn as an advertising platform, with modest monthly spend. Additionally, Stephen at Freakalytics used to work indirectly for Leslie Kilgore at Netflix who is currently on the Board of Directors of LinkedIn. Freakalytics currently has no business plans or agreements with Leslie, LinkedIn or Netflix. No claims are made as to accuracy of this data or analysis for investment purposes. Consult your financial adviser, properly registered and licensed in your location, before making any investment decisions.
See the recent filing data that much of this analysis is based on here.
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Tags: Analyst · Charts · Dashboard · IPO · Stock Market · tableau public · Thoughts4 Comments
Posted on May 18th, 2011 by
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Hi Stephen – I like the way you’ve colour-coded the tooltip text to make it easier to interpret the different lines. Nice, simple trick to making a viz easier to understand.
Thanks Andy, your the tooltip king! I threw this all together in about 2 hours today, it was a good break from the book we are trying to finish. I thought of you while developing this and decided to turn tooltips back on and “properly” show them!
I would contend that you would have to consider number of logins per user per week or hours spent on site per week to understand if Linked-in is undervalued. Or perhaps simply click through rate due to better ad-targeting (I know not all revenue is from ads). Interesting analysis.
Hi Alex, interesting thoughts. If we went down this path, we would likely need to examine how compelling the content is (click-through rate or CTR) in addition to how valuable that click is (cost per click or CPC.) Based on my discussions with people, LinkedIn should be able to charge fairly high CPC rates for key jobs. Consider the companies seeking great developers or managers, particularly those not currently seeking work. If 10% of these people click an ad for a job and 10% of those yield a successful hire, how much would a company be willing to spend if this becomes a quick path to great recruits? My estimate is $10-$50 per click. There are other routes that can be taken with premium subscriptions to search for candidates. I have had several recruiters at good and great companies contact me via this route.
Having said all of that, I would contend that infrequent usage on LinkedIn is less of a concern than with a Twitter or Facebook, since most people manage their career infrequently. But when they do, they are often willing to spend and so are their future employers! So, back to hiring costs, if the average professional hire costs $20k to hire and LinkedIn can capture 2-3% of this per hire on average, that’s $600 every few years.
Thanks for the dialogue! As you can see, I am quite impressed with their moat and the potential future value their niche represents.