LinkedIn has ended its first day of trading as a public company with valuation of $8.9 billion. This is 36 times its 2010 revenue. That’s right – 36 times revenue. As this Mashable piece points out this compares with Google at 5.5 times 2010 revenue and Demand Media at 4.4 times revenue.
What is the difference between LinkedIn and Demand Media? Well, Demand Media has a business model: a business model that is currently working and which is rooted in the fundamentals of its business. LinkedIn has none of these things. Perhaps that fact that Demand Media has a functioning business model means that analysts have some form of reality upon which to base their assessments, whereas for LinkedIn all we have is a model that appears to be a cocktail of one part fantasy and one part ignorance.
Whatever model the ever-so-clever money men are using, it will probably be one that basically regards LinkedIn as a form of content platform or media. However, LinkedIn, Facebook et al are not forms of media, they are actually infrastructures – that is certainly is the way people use them. I don’t know how you value LinkedIn as an infrastructure, especially when it is an infrastructure that didn’t really cost anything to build, where the idea behind it easily replicatable and the content within it essentially remains the property of its users. That sounds to me like a max three or four times revenue multiple proposition.
At some point in it is going to dawn on Wall Street that these properties are largely disposable infrastructures that simply host content on behalf of users – basically branded data storage facilities with some service add-ons. And then we will get the crash.