The Math On LinkedIn Is Sort Of Scary

29-Jan-2011

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CPA/entrepreneur







Since LinkedIn filed for its initial public offering yesterday, everyone seems to be asking not-to-subtle questions:  What’s it worth? What’s Reid Hoffman’s cut? How much are those 19 million shares worth? It’s okay. I get it. I work at Forbes. We heart wealth.

The answer is we won’t know until the company goes public. The company neglected to disclose a price, date or number of shares for the offering. But yes, the math can be tempting and Germany’s Xing AG provides a good starting point.

The German online business network was the first Web 2.0 company to go public in Europe in December of 2006. Today, its stock trades at 40.60 euros or about $55 a share. As of September 2010, the company boasted 10 million users, well short of the 90 million users LinkedIn cites in its S-1. In 2010, Xing reported $54 million in revenues, compared to LinkedIn’s $161 million.

Call it apples to oranges– the two companies operate in completely different markets– but it’s safe to assume LinkedIn’s stock could double Xing’s, in which case Hoffman’s stake would be worth about $2 billion. As for his venture backers, the math gets trickier. Using the same assumptions, Sequoia’s shares would be worth $1.7 billion, Greylock’s (where Hoffman is a general partner) $1.5 billion and Bessemer, half a billion. Once those firms pay out their limited partners, their carry might be worth $340 million, $300 million and $100 million, respectively.

But it’s only when you start to compare valuations that the math gets scary. At last count (January 2010) Xing was valued at about $300 million. In recent second market trades, LinkedIn was valued at $2.51 billion. Is LinkedIn really worth eight times as much as Xing? Does a $440 stock price sound reasonable for a company that made just $10 million last year and lost $3.4 million the year before that? Is Xing terribly undervalued or is LinkedIn overvalued? Leave your comments below. I’m listening.

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