LINKEDIN CORPORATION
INTRODUCTION
LinkedIn is the largest professional network that is known across the globe and it was officially launched on 5th May 2003. The main focus of LinkedIn was to create job opportunities for the job seekers and there were effective procedures in place which were used for better recruitment. Moreover, this is generally the most popular network that has significance among the professionals as well as job seekers.
In addition to this, itwas founded by four cofounders and Reid Hoffman in a location named Mountain View California. However, it was a web-based site that was used for the career professional networking activities and used for the management activities.
Moreover, when it came into existence, then within a short period of time almost 4500 members joined LinkedIn. Hence, it started earning revenues after the acceptance of advertising on its website in the fiscal year of 2004. It also included the selling of premium subscriptions and this was also comprised of the posting of job listings.
There was also the attraction of venture capital funding in the early years. However, this was comprised of the series A funding of almost $4.7 million and this funding took place in the fiscal year 2003. Despite this, the Series B funding was made by Grey lock in the fiscal year 2007, which amounted to almost $12.8 million.
In addition, approximately two new members joined the network on LinkedIn, which was comprised of 57 million members who were added during the fiscal year 2012 and the monthly traffic of the visitors is almost 21.4 million visitors.
PROBLEM STATEMENT
The main purpose of this case is to evaluate the market value of LinkedIn’s stock critically as a result of the recent IPO that it has made. Moreover, it is clear that these days there is a strong competition among the investors for the social media companies.
Hence, LinkedIn mainly has an outstanding position in the market in which it is operating because nowadays, there is an increased trend among the people in making use of the social media. Despite this, the case also has details about the early stage growth of LinkedIn;how ever there was a greater chance of uncertainty in terms of the fundamental value as well as the fluctuations that relate to the quoted prices because they are quite complicated to be justified.
LinkedIn Corporation Case Solution
CASE ANLAYSIS
By taking account of the exhibits and also the assumptions that are made in the calculations based upon the cost of capital and as well as margins, then as per the exhibits it can be seen that the revenues of around $60 billion have been taken into consideration and the expectation is also made about the employees, which comprises of almost 3 billion people.
Hence, this valuation assumes that almost 54% of that population is going to become the user of LinkedIn relatively, which will result in higher cash flows to the company. It is also evident from the situation mentioned in the exhibits, which is showing an increase of almost 104%.
In addition to this, the capital expenditure of $240 million is also taken into consideration and this value is taken from the case. Moreover, the growth rate of almost 2.00% has been assumed in the sales related to LinkedIn(Damodaran, 2006).
Apart from that, the earnings before interest and tax of almost $285 million in the fiscal year of 2006 are taken into account as per the case and in the fiscal year 2010 the earnings before interest and tax were$47,959 million. In addition to this, the growth in the value of capital expenditure can also be seen with a growth rate of 2.00%............................
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