IPO's give insight into social network value
We’re slowly starting to gain visibility into the value of social networks, following the float of China’s RenRen and LinkedIn’s plan to IPO in the US later this month.
LinkedIn plans to sell 784 million shares for $32 (€22.25) to $35 each, which would value the firm at between $3 billion and $3.3 billion – roughly 12 to13 times higher than 2010 revenue. That makes it a bargain relative to RenRen, which raised $743 million in its recent IPO in New York –78 times higher than 2010 sales.
The valuation of the business-oriented LinkedIn is likely to be much lower than consumer-focussed rivals including Facebook and Twitter. However, the Financial Times notes the site could be a safer bet than those consumer rivals, because it is not subject to the same vagaries of public taste.
Private share market Nyppex estimates Facebook could command a premium of 32 times above 2010 sales, FT.com notes, while Reuters states sites including Twitter and Zynga carry multi-billion dollar price tags based on private market trades.
However, the news agency hints at trouble ahead, after Facebook shares sold for less than their peak value in recent trades.
Markets may also inject a dose of reality into company’s own valuations. The Wall Street Journal points out that LinkedIn’s target per-share price would mean its value has doubled in a month, and that the firm has a tough – though not impossible – challenge to grow EBITDA 150% to match the IPO price.
Speculation aside, if LinkedIn achieves its target sale price, the stage must surely be set for rivals including Facebook and Twitter to follow suit. When they will do so, though, remains anyone’s guess.