LinkedIn (LNKD) is very close to going public having even set the price of its soon to be public shares between $32-$35. The latest rumors are that LNKD will start trading this Thursday!! That should be great news by all accounts right? LinkedIn was one of the companies that we were anticipating to trade and while it’s not Facebook, it remains one of the more interesting business models and becomes the best way to invest in the new “social web”. I remain very bullish about the company but I thought it would be interesting to examine the pros and cons of buying LNKD, one of the companies that I follow that has not turned public yet.
-Potential: LinkedIn already has 100 million users and while the level of “commitment” is probably much smaller than rival Facebook, I think the “money value” of each user is probably superior.
-Great niche/angle: Facebook has a great audience but I think in many ways LinkedIn users could end up being more profitable a on “per user basis”. Why? Because LinkedIn can become a superior alternative to websites such as Monster Worldwide (MWW) which helps employers recruit. LinkedIn could also start gathering and selling data to consulting firms about tendencies, wages, etc.
-Great value to employers: Having a more reliable history of possible candidates including their past experience, colleagues, etc. I have to think that this huge value will translate into revenues and profits at some point.
-Being able to get exposure to the “social web” might be too good to be true. Let’s face it, Facebook is one year away from turning public and while I think the sector will see tremendous growth in the coming months, LNKD seems like the best way to profit from this growth.
-As crazy as valuation seems to many (more on that later on), LinkedIn is cheap compared to the recent IPO of the Chinese Facebook, Renren which sold at 78 times revenues
-Valuation: LinkedIn is scheduled to Ipo valuing the company at $3.165B. While that number is nowhere near what Facebook seems to be commanding at the moment, it still does represent a very important number especially when compared with the current financials of the company. Revenues in the most recent quarter were slightly under $94 millions with earnings of close to $2.1 million. That still means the company is trading at over 8-9 times annual revenues in a similar way as Open Table.
-No voting power: From what I understand, there will be two classes of stocks with class B stocks owned by founder Reid Hoffman keeping 99.1% of the voting power despite only representing 21.7% of the shares
-Bubble?: Goldman Sachs (GS) had a stake in LinkedIn and has decided to sell it off in this public offering, are the valuations just too great to keep the shares? If so, would we be crazy to buy right now?
While I’m not as excited as I would be about buying shares of Facebook (even at a $100 billion valuation), I will still be looking very carefully at this IPO and could very well end up buying. In terms of the long and short trades, going long against a company such as Monster (MWW) seems like a virtual certainty at some point. I also feel like I have a better understanding of LNKD compared to more recent additions to the stocks on my radar such as Youku and thus could end up trading LNKD sooner than later.