Did LinkedIn Just Make Facebook Worth $100 Billion?

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Since I’m based in Silicon Valley, I hear lots of buzz about Facebook, but not so much on LinkedIn (NYSE:LNKD). 

Of course, this changed last week with LinkedIn’s red-hot IPO.  There were certainly many smiles as startups realize that there may be a new wave of wealth creation.

But what does the LinkedIn deal mean for a much-anticipated-but-yet-to-be-announced IPO by Facebook?

It’s hard to tell.  The fact is that LinkedIn is not a true consumer Internet play, but it does have social networking in its DNA – and this is what attracted investors.  They desperately want to get a piece of this market.

If anything, the LinkedIn IPO will likely spur the filings of other social networking firms like Twitter, Zynga and Groupon.  It’s a good bet that Wall Street banks are working 24/7 to move things forward.

Since LinkedIn isn’t a pure consumer operator, its valuation is likely only a floor for Facebook. 

Assume that LinkedIn generates $500 million in revenue this year, the forward price-to-revenue multiple is about 18.  Applying this to Facebook, which is expected to generate $4 billion in revenue in 2011, the valuation comes to $72 billion.  This is actually within the range of the latest trades on virtual markets like SharesPost and Second Market.

But over the next month or so, expect an escalation.  It wouldn’t be surprising to see valuations of more than $100 billion.  Basically, investors are likely to place a higher multiple on Facebook.

How can individual investors play this?  Should you buy shares in the virtual markets?  That brings other issues — the trades can easily take a month and the fees can add up to thousands of dollars.  Besides, the transaction amounts are typically in the six figures. 

Despite this, you can perhaps benefit from the Facebook IPO by using a back-door strategy.  As I mentioned in an earlier article, it is probably better to wait until about six months to buy shares of LinkedIn.  The reason is that this is when the lock-up agreement expires, which allows the founders, venture investors and employees to start selling their shares.  The result is usually downside pressure on the stock.

In fact, this will happen a few months before Facebook is expected to have its IPO.  In other words, as the excitement increases for this offering, companies such as LinkedIn will likely see a rally.

True, as with any strategy, it is not fool-proof.  But given that Facebook is likely to be a mega-IPO, it’s reasonable to assume stocks in the social-network arena will benefit.

Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.”  You can find him at Twitter account @ttaulli.  He does not own a position in any of the stocks named here.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2011/05/did-linkedin-just-make-facebook-worth-100-billion/.

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