LinkedIn Corporation went public on the New York Stock Exchange on May 18th, 2011. The Initial Public Offering documents listed the stock at $45 per share. It started trading the next day at an opening price of $83.20, peaked at $122.70, and closed at $94.25. This was an increase of 109.44% over the IPO price. Almost two years later, the stock has had its low points, but still its market price remains well above the value calculated by many analysts. Critics feel that company’s days of fast-paced growth are numbered. There is also the growing threat of intense competition from Facebook, Google, Monster, and private companies like, Viadeo. We’ve completed a SWOT analysis of LinkedIn in order to highlight some key points. (SEE APPENDIX A) Based on this analysis and LinkedIn’s financial history, we seek to calculate a fair book value for today’s LinkedIn stock, as well as a projection of the stock price in 2016, five years after the IPO. We will use the Constant Divided Growth Model, Valuation by Multiples, and the Capital Asset Pricing Model in our calculations.
Reid Hoffman, Allen Blue, Jean-Luc Vaillant, Eric Ly, and Konstantin Guericke founded LinkedIn in 2002. The company launched in May 2003 as LinkedIn Ltd., but changed its name to LinkedIn Corporation in 2005. They are currently headquartered in Mountain View, CA, and have over 20 offices worldwide. LinkedIn Corporation is the world’s largest professional online network, under the leadership of CEO Jeff Weiner. They have recently attained the 200 million members milestone, with members in over 200 countries, and catering to 19 languages. LinkedIn’s primary purpose is to allow members to “create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful”. (LinkedIn)
Our mission is to connect the world’s professionals to make them more productive and successful. Our members come first. We believe that prioritizing the needs of our members is the most effective, and ultimately the most profitable, way to accomplish our mission and to create long-term value for all of our stakeholders. We will continue to concentrate on opportunities we believe are in the best interests of our members. Our long-term approach enables us to invest, innovate and pioneer in unexplored segments of our industry to increase the value proposition of our proprietary platform and extensive data. Our solutions are designed to enable professionals to achieve higher levels of performance and professional success and enable enterprises and professional organizations to find and connect with the world’s best talent. (LinkedIn Prospectus) Vision
To create economic opportunity for every professional in the world.This vision not only applies to each of our employees, but every LinkedIn member, each of whom has the ability to create economic opportunities for others. We believe this is the fundamental power of our network. (LinkedIn Prospectus)
LinkedIn has three streams of revenue: premium account subscription accounts, fee-based job postings, and sale of advertising space. Basic membership is free, but for a fee members can have access topremium features, such as: expanded search capability, greater profile visibility, and direct messaging. There are three subscription levels, which fees increase with additional features. As of September 30th, 2012, paid memberships only accounted for 20% of LinkedIn’s total revenue. This percentage remains unchanged from the same time frame from the prior year. They also provide hiring solutions to organizations of all sizes and industries.This business segment provides for 54% of their revenue, a 4% increase from 2011. Recruiters are able to search the profiles of candidates, whether they...