With the LinkedIn (LNKD) IPO occurring today - I wanted to give some thoughts. Here they are:
LinkedIn IPOed today closing at $94.25 for a market capitalisation of $8.9bn - at 31 December 2010 $LNKD had $92m of cash and no debt - so we will give $LNKD an Enterprise Value (EV) of $9.0bn.
Big result. On SecondMarket (private secondary market) LinkedIn shares had traded at $35 a share in March 2011. The IPO was priced at $45 a share. End of first day $94 a share. The IPO bankers - Morgan Stanley (NYSE:MS), Merrill Lynch (NYSE:BAC) and Allen & Company - may have some questions to answer about pricing. A lot of interest - a good IPO for the technology/internet sectors.
How about some ratios? We are going to focus on EV/Revenue - how is the market valuing a company as a ratio of revenues. Because we are talking about growth companies - we are going to use estimates of 2011 revenues. So EV/Revenue (Forecast 2011).
LinkedIn had revenues of $78m in 2008, $120m in 2009 and $243m in 2010. The company says growth will slow this year. We have estimated 2011 revenues at $400m - our number.
LinkedIn EV/Revenue [Fcst 2011] is therefore 22.5x
How about some context
Apple (NASDAQ:AAPL) EV - $285.6bn, 2011 forecast revenues - $103.0bn: EV/Revenue [Fcst 2011] 2.8x
Google (NASDAQ:GOOG) EV - $137.7bn, 2011 forecast revenues - $28.3bn: EV/Revenue [Fcst 2011] 4.9x
Facebook - a bit more detail. Market Cap - $75bn on SecondMarket and $85bn on SharesPost (we will use the lower). We will assume zero net debt (long-term borrowings less cash). Gives an EV of $75bn. A reliable estimate of Facebook ($FBOOK) revenues for 2011 is $4.05bn. EV/Revenue [Fcst 2011] 18.5x
LinkedIn does look expensive. But a lot depends on the future growth prospects - as it does with all company valuations. How fast can LinkedIn grow paying subscribers? As a sample size of one - I love the LinkedIn service (freemium business model) but I get all the functionality that I need from the free offering.
It will be really interesting for Facebook investors to watch the LinkedIn IPO. I imagine that a number will now be pushing for an IPO for Facebook - with the success of the LinkedIn IPO. The gap in value between the SecondMarket trades for LinkedIn and and the IPO outcomes will have current investors salivating. From a market efficiency point of view - it will be interesting to see what happens to the next set of trades for Facebook on SecondMarket and SharesPost. Even if there is simply a lift in the Facebook multiples - our analysis of high-level EV/Revenue [Fcst 2011] for LinkedIn is 22.5x which equates, if applied to Facebook, a valuation over $90bn.
Interesting times ...
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.