I guess that when companies like Microsoft can value a social network at $15 billion the way they valued Facebook, $1 billion sounds like a steal, right?

I interviewed, Jordan Hudgens, the founder of Vidshadow, and asked him this exact question.  Hudgens founded Vidshadow, which is an online video platform company that enables social networks to have video, so I thought he would have an interesting perspective on the LinkedIn quesetion.  Here was his response:

“LinkedIn has reached what no other online social network has been able to achieve, full adoption by the business community.  It is very rare that I come across a fellow CEO or senior level executive who does not have a LinkedIn profile.  And compared to Facebook’s $15 billion dollar valuation, Linkedin’s $1 billion dollar value is a relative bargain.  It is also important to examine the revenue model that LinkedIn has compared to other social networks, from job posting to premium membership services, LinkedIn does not have a true competitor in the Web 2.0 space and more importantly is not 100% reliant upon advertising sales.  This makes it a much more ‘grown up’ social networking business model.”

In the normal “ad-supported” industry, the valuation appears high, however if LinkedIn meets their financial projections of $100 million dollars in revenue for this year, that would equal a 10x multiple, which is much more down to earth than Microsoft’s value of Facebook.  The tech industry has been known for astronomical valuations for a fast growing company.

Consider the public valuation for Chinese owned Alibaba.  When Alibaba went public this past Winter, they were trading at 32x earnings on the Hong Kong Stock Exchange.  And if LinkedIn were to IPO with $100 million in revenues, they would most likely be getting a 10-20 times earnings ratio, which would give these recent investors a great return on investment.