Are we entering a social media bubble? Part 1

LinkedIn

Dan Nye, chief executive of LinkedIn (Photo: Dave Getzschman )

We’ve seen the dot-com bubble and the housing bubble. Are we entering a social media bubble?

The major social media site are Facebook, Twitter, and LinkedIn. Social media IPO (initial public offering) talk is all the rage.

Let’s take a look at the social site most likely to have an IPO first – LinkedIn.

IPOs already have a high level of risk due to relatively short historical data. Let’s look at the data on LinkedIn.

Initial IPO details and numbers:

  • LinkedIn wants to raise $175 million as its maximum aggregate offering price
  • Morgan Stanley & Co. will be the lead underwriter
  • LinkedIn is currently valued at nearly $3 billion

LinkedIn Financial Numbers:

LinkedIn is still a private company, but they have revealed some key financials.

2009:

  • Net revenue, 2009: $80.8 million
  • Total expenses, 2009: $84.1 million
  • Net income (after tax), 2009: -$3.4 million

2010:

  • Net revenue, Jan-Sept 2010: $161.4 million
  • Total expenses, Jan-Sept 2010: $148.9 million
  • Net income (after tax), Jan-Sept 2010: $10.1 million
  • Cash on hand (as of Sept 30, 2010): $89.6 million
  • Total assets (as of Sept 30, 2010): $197 million

Revenue Breakdown:

2009:

  • Job listings, 2009: $23.75 million (29% of revenue)
  • Advertising, 2009: $23.8 million (30% of revenue)
  • Premium subscriptions, 2009: $33.2 million (41% of revenue)

2010:

  • Job listings, Jan-Sept 2010: $65.9 million (41% of revenue)
  • Advertising, Jan-Sept 2010:$51.37 million (32% of revenue)
  • Premium subscriptions, Jan-Sept 2010: $44.1 million (27% of revenue)

LinkedIn User and Website Statistics:

  • Registered users: 90 million (as of December 31, 2010)
  • Unique visitors: 65 million (average of Oct, Nov and Dec)
  • Pageviews: 5.5 billion (average of Oct, Nov and Dec)
  • Employees: 990 (as of December 31, 2010)

It is interesting to note that LinkedIn only started to make a profit in 2010. Even then, the net profit was $10.1 million – very low for a multi-billion dollar valued company. We can already see a shift in terms of sources of revenue from premium subscriptions to job listings and advertisement. This shows the increased reliance on traffic for revenue, with their traditional source of recurring revenue, premium subscriptions, making up smaller percentages. In my opinion this increases the risk for substitution, as a viable competitor could easily cut into a large portion of LinkedIn’s revenue simply by taking traffic away.

Yet somehow investors are very interested in the “potential” this social media site. Sharespost shows shares already valued about $30. Is there really hidden or potential value not seen through financials? Is this the future of business models?

We will look further into this with twitter and Facebook, which will be explored in part 2.

Comments
2 Responses to “Are we entering a social media bubble? Part 1”
  1. Mike says:

    Nice breakdown on the financials…

    Very rarely are IPOs good on paper. A major reason why they’re IPOing in the first place, to raise cash for expansion, etc.
    The alternative would be venture capital, but at some point those VCs want to cash out.
    I figure, if a company is doing really well and making a decent profit why IPO in the first place?

    Look out for Pandora too…they should be IPOing later this year. I’m sure FB will follow…maybe Groupon too??

    Who knows?

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