LinkedIn, the most prominent social media network for business professionals is preparing to list their IPO (initial public offering) on the New York Stock Exchange. The goal is to raise as much as $175 million with this initial public offering, through releasing 7.8 million shares at $32-$35 a share. This would valuate the company at more than $3 billion, and release 21.7% voting power to new shareholders.
Does a $3 billion valuation make sense? Well, LinkedIn earned $15.4 million on 2010 on net revenue of $243 million. So, from a Warren Buffet perspective, the answer is an overwhelming “NO!” But, there is no doubt that LinkedIn is positioned and primed as the #1 social networking site for business professionals. But, knowing exactly what that online monetization looks like in the future – in order to agree with a $3 billion dollar valuation (12 times their yearly net revenue) sure seems like a gamble at this point.