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.