LinkedIn foreshadows rich social media IPOs

Ronny Kerr · May 19, 2011 · Short URL:

Facebook, Twitter and Zynga sure to generate the same kind of excitement when they go public

Well, the LinkedIn IPO rollercoaster ride is over (or is it just starting?) and it's time to take a closer look at some of the financials involved in the first public offering for a U.S.-based social media service.

By late afternoon, the company's market cap had peaked at just near $10 billion, with shares trading close to $100. Right now, the market cap is seated snugly around $8.91 billion with $94.25 shares.

And all for a company that reported just $161.4 million in revenue over nine months in 2010. That's hardly a sixteenth of the $2 billion in advertising revenue that analysts say Facebook made last year. But then, there's a reason LinkedIn closed its valuation on the NYSE today at less than $10 billion and Facebook is currently valued at upwards of $65 billion.

The graph above is a rough estimation of the P/R (market cap divided by annual revenue) for the hottest tech companies, public and private.

LinkedIn just generated a boatload of excitement, just for being associated with social media, so you can expect its stock today is the highest it will ever be for awhile.

That said, it's remarkable that all the social media companies--Facebook (P/R of 32), LinkedIn (29), Twitter (74) and Zynga (10)--have P/R values equal to 10 or higher, meaning their shares are trading that much higher when compared with the  public companies. For Facebook and Zynga, which already have proven revenue models, this means they will have bountiful public offerings, since they're already trading at 32 and 10 times their revenue. Twitter, which has struggled to monetize, might just be a little bit over-valued.

If Twitter went public today, maybe you could scream "bubble." But that's not what happened.

The NYSE got LinkedIn, a company that is "not a fly-by-night," according to Mona DeFrawi, founder and CEO of Equidity. DeFrawi, who has over 20 years of experience in guiding entrepreneurs to public markets, told me that investors were right to have faith in LinkedIn since the company has "reinvested significantly in building its long-term base. It has actual growth numbers, real revenues and the company is creating jobs."

Besides comparing multiples, another interesting way to look at the financials is by comparing revenues to users. With a $8.91 billion valuation and having just surpassed 100 million members, LinkedIn is trading at $89.10 per user. Compare that to Facebook, if valued at $65 billion with 600 million members: on the public market with those numbers, it would be traded at about $108.33 per user.

Twitter, valued by Kleiner at $3.7 billion with 200 million members, would trade at $18.50 per user. Finally, Zynga isn't technically a network, but if we consider the 100 million or so CityVille monthly active users, then the social gaming company would be traded at $45 per user.

That makes Facebook worth the most, followed closely by LinkedIn, with Zynga and Twitter trailing far behind.

Sources, all based on latest reports and estimates:

Apple: market cap, revenue.

Facebook: revenue, valuation.

Google: market cap, revenue.

Groupon: revenue (assumed same monthly revenue for entire year), valuation.

LinkedIn: market cap, revenue (assumed last three months of 2010 similar to rest of year).

Microsoft: market cap, revenue.

Twitter: revenue, valuation,

Yahoo: revenue, market cap.

Zynga: revenue, valuation.

Support VatorNews by Donating

Read more from our "Trends and news" series

More episodes