40x refers to the return to the investors. If investors own e.g. 30% (I am making this number up and have no knowledge of the situation), their return is ~12x.
The good news is that since the employees owned some we can be sure that they saw some of that 119M$. That being said their site died :-)
[1] Random note: It seems to me that that KK would be the appropriate unit for millions (thousand-thousands) and MM would be Million Millions or (10^12, or trillions.
Mille, i.e. Latin for a thousand. Thus MM = 1000 x 1000 = 1,000,000.
I rarely see MM used to denote a million outside the financial world. I have never seen a job, for example listing remuneration as "circa 120M" meaning 120,000
I don't know about you, but if I made $500,000 on a company sale then got another job, that $500,000 would go a long way in helping me save for retirement or cut down bills.
There is absolutely nothing wrong with shooting for a massive exit, but I don't think it is reasonable to hate on a multimillion dollar exit.
856 'Underperform' to 196 'Outperform'? Sounds like somebody is bearish! (disclaimer: as i'm sure is quite obvious the Motley Fool community KNOWS EVERYTHING and is NEVER WRONG. coughcough)
I don't know what the cash/stock split was, but it's worth mentioning the LinkedIn's IPO raised $352M* so buying SlideShare was just under 34% of all the money they raised.
Linkedin has revenue though, they're not just burning cash. Wikipedia tells me they grossed $243M last year, so a purchase like this doesn't sound unreasonable.
I just looked at LinkedIn's P/E. It's almost a thousand. How is anyone valuating the company in such a way that could even assume they would increase their revenues 50 times over in the next few years?
P/E is market cap divided by profits. Your comment about increasing revenues by 50x is non-sensical.
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Just looking at P/E in isolation is like judging a programmer by how fast they can type. You need to take a broader approach to reading financials and understanding the underlying business.
I haven't followed LinkedIn close enough to have an opinion on the current valuation. You may be right that it is overvalued, but the PE ratio isn't a very good indicator in isolation of expected future earnings.
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Can someone provide a concrete example of a company that has doubled revenue in a few years without incurring additional cost? I realize that it is possible, but I'd love to see where this has actually occurred.
It is uncommon in most industries, but quite common in pharma and theoretically possible in tech. I am not in front of a bloomberg terminal, but off hand I believe Google doubled its quarterly revenue in 1 year. Something like $800M-> $1.5B and added just 2000 employees[1]. That is why the stock went from $110->$400 in the first year of being public.
It is not uncommon for small pharma companies to have 1000% increases in revenue with little cost increase, especially if the companies don't manufacture or do marketing and just take royalies from big pharma.
[1] My memory is not perfect, but I was invested at the time and paying close attention. I remember being blown away that their revenues doubled and they only cost they added to the business was mostly non-search related activities.
Why would someone assume that revenue needs to increase 50x? Perhaps you're assuming fixed margins (which are currently close to zero). If they doubled their revenue without increasing expenses, they would have a P/E closer to 20.
I fell for the same thing myself a while ago; the rules actually are different when you're selling something with zero marginal cost.
As long as you believe LinkedIn can increase their revenue without adding to costs, their current P/E is kind of irrelevant.
This is why investors basically hate consulting companies (since revenue/earnings scale linearly -- in some ways, sub-linearly, since you have to hire more layers of manager), and love products selling zero unit cost products or services directly online.
Something like LinkedIn probably does have very little sales cost related to selling a higher end account, and little marginal cost to actually providing it.
Plus, LinkedIn is a network, so the more users use it, the greater value they each get from using it, and so the higher the revenue per user possible.
Things to watch out for are huge revenue/low earnings when you're near max revenue (so, a product which can only sell to a market of maybe 10000 people worldwide, 9500 of whom already use it, and who are paying a price which is only break-even for you -- adding the extra 1k users won't really get you to good margins), or services, like Groupon, which have huge sales costs to produce incremental dollars of revenue (even if the actual product is basically free to provide).
the rules actually are different when you're selling something with zero marginal cost.
I don't think there is any business that sells something with zero marginal cost. Even if LinkedIn grows significantly without any marketing and sales activities, they still must deal with:
More users == more servers
More users == more support staff
and on and on.
Use Google and Facebook as classic examples.
And if you aren't getting more users, then you are ramping up marketing efforts to do so.
While LinkedIn is a definite success story, I'm not buying it that they are running a zero marginal cost business. I don't believe that anyone is.
Yeah, but it's a step function. You can service, say, 100k users on a couple of servers. User # 100,101 means you have to buy a new server. Technically that user costs more, but the next 99,999 cost 0. (Leaving out rules about depreciation, amortization etc - I'm just talking pure cash flow.)
I don't know anything about Linkedin, but PE can be deceiving and let me explain how.
First, P/E ratio is the Market Cap/Earnings (earnings = profit)
The basic way to get earnings is to subtract all expenses from revenue. (this is an overly simplistic definition, but it is mostly right, almost all the time).
So you have:
Gross Revenue - Expenses = Earnings
What is left out of this simple definition is "operating leverage". Operating leverage is the concept that you have a set of costs that don't move much no matter how much your revenue moves. Most internet companies have a lot of operating leverage.
So lets take a hypothetical company:
Quarter 1: (Revenue) $100m - (Expenses) $99M = (Earnings) $1M ..... All with a market cap of $100m, the P/E would be 100.
Now, if expenses are mostly fixed, (think lots of engineers salaries which have most everything running in macros etc.) and the revenue increases by 5% what is the new PE?
Q2
$105m - $99m = $6m .... all with a market cap of $100m, the new P/E would be about market average of 16.66
--You could do the same example if you drop your long term projections on R&D, or acquisitions or any number of expenses.
LinkedIn is the world's premier social network for professionals. I'd imagine there's a lot of ways to make money off that besides their current scheme of basically charging recruiters a ton of money. Just to throw wild ideas out: build more tools for recruiters. Own the whole software stack that runs the recruiting pipeline (coincidentally, jobvite is a piece of shit.) Create classes and certification programs that help replace college degrees. Cross company calendaring integrated with my gcal and work calendar (eg I want to have drinks with friends, and I want all my calendars to sync. I don't want my work cal to necessarily say that I'm having drinks or with whom, but I want the time to be unavailable.) Steal the job search market from indeed and simply hired. Do meetups tailored to professional activities like user groups. Do message boards and mailing lists for professional groups that don't suck (unlike their current offering.)
Wondering whats the goal of LinkedIn for this acquisition? It is not a people acquisition. And SlideShare is already integrated with LinkedIn's platform. So I'm curious!
It seems like a strategic acquisition. LinkedIn looks poised to be expanding more into business operations/communications, especially given their previous acquisition of CardMunch. I can definitely see them trying to position themselves as an indispensable communication tool for industry and business professionals.
I think Yammer is probably too expensive at this point. But they might want to build a competitor. Social CRM in general is a hot space and LinkedIn is well positioned to take a big chunk of that market.
This is incredibly good news - no not because it's another acquisition but rather it is an acquisition of a quality and worthwhile business that has a defined set of competitive advantages to sustain itself in the long-term. Love it.
Does LinkedIn own a Webex yet? If they're going from a recruiting site to a full business-communications type model (archiving, in this case) they're going to need it.
