Social Media is over-valued

I have been writing for a while now about my views on social media companies and their apparent valuations. I just cannot see how these valuations can be so high, especially considering the known business models they each use.

LinkedIn was first, next comes the Groupon IPO.

The good folks at gplus.com gathered data and put in into a nice infographic to see the various valuations of some social media companies. I will add that there should be at least one correction to the graphic: it’s not a tech bubble; it’s a social media bubble.

 

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phtoto credit

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2 Responses to “Social Media is over-valued”
  1. Moritz says:

    As a former Headhunter and now In-House Recruiter with big corporate FMCG groups I have first hand experience with LinkedIn. I must say I find it quite bizarre when people compare LinkedIn with social media like Facebook, Twitter and the like, because LinkedIn is so much different as it offers a unique tangible service for business. LinkedIn is at the forefront of the transformation of recruitment practices in the global war for talent and is making huge inroads into the European market for instances, which has been trailing behind this development. The fact that they are pushing to expand internationally is a good sign. IMO the potential is huge, but maybe the slow jobmarket in the US is blinding you guys a bit? Admittedly, where there are no jobs, LinkedIn doesn’t do much, but in a lively economic environment nothing goes without LInkedIn accounts when it comes to talent acquistion and career development.

    There are many casestudies out there – LinkedIn advertisese them nicely of course :) – how big corporates have been able to generate millions of savings by implementing LinkedIn in their talent acquisition operations (reducing external agency use). I have been part of such operations myself and can assure you it’s no myth and I dare you to show me any other ‘social media’ platform with similar merits. As a conclusion, I am convinced that if LinkedIn Topmanagement handles this right, going international (into ASIA!!!), being creative and tenacious, they will find new ways of revenue and hugely grow their existing ones. Linkedin has the potential to become the number one talent acquisition technology software company in the world and is here to stay! And if ever it will be acquired in the future, it will be by somebody like SAP rather than Facebook!

    • Gian Sorreta says:

      Thanks for you thoughts and insights Moritz.

      I think LinkedIn is often compared to social media because it has many of the same features and characteristics of a typical social media platform, but having a business emphasis. After all, LinkedIn still has connections, activity feeds, twitter feeds, blog feeds, and messaging

      As far as LinkedIn services, I do agree with you that they are at the forefront of of the transformation of recruitment practices. As far as the potential, this is where we differ in opinion. It’s possible that the job market may also be blinding us a bit, but here’s where we are coming from as investors.

      The business model appears stable, but doesn’t lend itself to a lot of revenue and profit. Of course much is spent on sunk costs and expansion, so that plays a large part to the numbers. LinkedIn is projected to not make a profit this year as well due to expansion costs. Most of LinkedIn’s revenue is not from advertising, but from job listings and premium services. While many business may have saved millions on their talent acquisition services, LinkedIn is not seeing that money at all.

      The net revenue of LinkedIn in 2010 was $161 million – which was double the revenue from 2009. Is that enough to justify the nearly $9 billion in valuation? In my opinion, LinkedIn’s revenue will have to double each year until 2013 to fully justify the price.

      As far as growth, I also see some big hurdles, especially in Asia. It’s no secret that Asia is growing tremendously, and it is also no secret that many of the Asian countries are resistant to foreign competition. I think LinkedIn’s model is relatively easy to copy, and will be copied in China, if it hasn’t been copied already.

      Then comes the question: If another big player such as Facebook or Google decided to step into LinkedIn’s market, will they be able to retain a competitive advantage? Both Facebook and Google are stepping into Groupon’s Market, so it’s not a far stretch to think they won’t eventually step into LinkedIn’s market.

      I guess only time will tell. Maybe you’ll be right, maybe I’ll be right, maybe none of us will be right. :) However, one good thing is that recruitment practices and talent acquisition will be forever changed for the better – no matter which company ends up ahead in the long run.

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