May 20, 2011 | In: Opinion, Technology

If LinkedIn Is Worth $10 Billion, then How Much Is Facebook Worth?

I have written about the LinkedIn IPO before, and I estimated that LinkedIn is worth anything between $1 billion and $10 billion. I also said that a range of $3 to $5 billion is more likely. I estimated the price of LinkedIn based on Facebook’s valuation of $50 billion: I compared the traffic between the two, and took into consideration that LinkedIn’s traffic is of higher quality than that of Facebook.

Yesterday, LNKD became public, and it is currently trading at $102, and with a 94.50 million shares, this gives it a total market capitalization of $9.64 billion. The stock reached a high of $122 yesterday for a total market capitalization of $11.52 billion!

Obviously, we haven’t heard the end of this, and I think that the stock has the potential to go up another 50% by the end of next month, which makes the value of LinkedIn around $15 billion. And, if the bullish sentiment remains, LinkedIn will be worth $20 billion by the end of the year, where the stock price will probably be around $211.

I took a finance class last fall, and I remember the teacher telling us that the reason behind any IPO is to expand the business with cheap money (money with no interest rate or serious commitment). Now if I look at the LinkedIn IPO, I don’t see it at all a way to expand the business, the business is online, how big can it get? I only see it as a scam to fill the executives’ pockets (who own many shares at peanut price) with billions of investors’ money, but hey, that’s just me, maybe I’m too skeptical.

Regardless of what I believe, the market decided that LinkedIn is now worth $10 billion on the second day of trading. Now, if LinkedIn is worth $10 billion, then the market is saying that Facebook is really worth $50 billion! That’s right, when I wrote the article on the LinkedIn IPO a few months ago, I reached a valuation of LinkedIn at $10 billion by starting with a valuation of Facebook at $50 billion. But, in my calculation, I assumed that Facebook’s traffic is 50% less important than LinkedIn’s traffic, but if the market decides that both LinkedIn’s and the Facebook’s traffic are equivalent, then, based on the chart below, we can say that Facebook is worth 8.5 times what LinkedIn is worth, in other words, $85 billion!

Facebook’s Traffic vs LinkedIns’ Traffic: Facebook has 8.5 times the traffic of LinkedIn

Regardless of what I think or what any other investor would think, I am sure that $85 billion is how much the market will decide Facebook is worth in the first couple of weeks. I think if the momentum is kept, then Facebook can easily be valued at $150 billion in a year after its IPO. After all, it’s second only to Google, which is valued at $170 billion, and Facebook has the advantage of offering its users with much more targeted ads than Google (which tries to guess who the user is and what his interests are through search queries, versus Facebook that knows who the user really is, and what his interests are).

Keep in mind though that, unlike Google, both Facebook and LinkedIn are websites that can be easily cloned. I don’t know if investors are taking that into consideration (see investing in social networks). Pump and dump is the key here, but the question is, when is it the right time to dump?

5 Responses to If LinkedIn Is Worth $10 Billion, then How Much Is Facebook Worth?

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What Will Be Facebook’s Stock Ticker Symbol? « Fadi El-Eter

June 3rd, 2011 at 8:33 pm

[...] LinkedIn became public, and what was it’s stock ticker? LNKD, and it was listed on the NYSE. LinkedIn is very comparable to Facebook, they are in the same industry, they have a very similar business (but both the audience’s [...]

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Is LNKD a Buy? « Fadi El-Eter

June 26th, 2011 at 9:24 pm

[...] I have discussed LinkedIn (NYSE:LNKD) a couple of times before: the first time it was before the IPO, and the second time on May 20th, the same day of the IPO. [...]

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What If People Lose Interest in Facebook? « Fadi El-Eter

July 6th, 2011 at 3:29 pm

[...] revenue for the first 25 years after the IPO is $50 billion. Several weeks ago, I estimated what will Facebook be worth by comparing it to LinkedIn, and the number was a minimum of $85 billion. Which means that if the growth of 20% over the first [...]

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Why Is It Not Wise to Delay the Facebook IPO « Fadi El-Eter

October 10th, 2011 at 2:40 pm

[...] Facebook is valued at a $100 billion by the market, and that’s because there is so much hype about it at the moment. Everyone wants to be part of this phenomenon. But will it still be the case in a year from now? Or will it not? Will investors still think that Facebook is a good deal at $100 billion? Or will they not? [...]

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Investment Strategies for 2012 « Fadi El-Eter

December 6th, 2011 at 6:12 pm

[...] to do. What if people don’t like Facebook anymore? Have you ever thought of that? Note that I evaluated Facebook at almost $100 billion myself (well $85 billion to be exact) long before it was officially evaluated at a $100 [...]

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