Two insightful articles from Reuters this week paint an interesting picture for the top social networking sites. As the articles explain, LinkedIn could go public in 2011 and Facebook in 2012.
Rumors of the planned IPO for LinkedIn in 2011 come from sources familiar with the company’s recent efforts in securing financial underwriters. With 85 million users, LinkedIn is the most popular social networking site for business people and career-minded individuals. It’s a focused brand with a great deal of value that is distinctly different from the broader social networking brand of Facebook that boasts over 350 million users.
It was as early as September 2010 when Facebook insiders leaked news of a possible public offering in 2012, but that timeline might speed up if regulators find reasons to require an earlier IPO.
Of course, with a new breed of dot-com IPOs comes reminders of the dot-com bust that happened just over a decade ago. Will the huge investments and valuations for a brand like Facebook help or hinder other dot-com IPOs? Is Facebook really worth the $1.5 billion in investments (at $2 million a piece) Goldman Sachs expects to raise in the next year? Facebook’s valuation is $50 billion. Is that realistic or is it an inflated number that sets expectations for subsequent IPOs that are completely unrealistic and unsustainable?
“For Facebook, which Bloomberg and others have estimated to have generated $2 billion in revenue last year, the $50 billion valuation means investors have awarded it a multiple of 25 times sales, compared with a nine-times multiple for Google and Amazon.com’s 2.5-times multiple. In the first nine months of 2010, Facebook generated $1.2 billion in revenue and earned $355 million in net income, according to unaudited financial details released by Goldman to its private wealth clients. Facebook generates $4 per user, compared with Google’s $24 per user and Yahoo’s $8 per user, according to a recent report by JPMorgan.”
Facebook’s value is being marketed as potential over hard numbers. Since Facebook surpassed Google as the most visited website and the site displaying the most ads, the value of Facebook might just be at the beginning. Or is it? Only time will tell.
What do you think? Are inflated valuations appropriate for dot-com brands like Facebook? Leave a comment and share your thoughts.
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