Is LinkedIn Worth $1 Billion?

 The big news tonight is business social network LinkedIn raised $53 million in Series D funding at a valuation of $1 billion. The new round is led by Bain Capital (the same genius investors who also funded Vonage) brings the total money raised by the company to about $80 million. I wasn’t going to write about this, given everyone had already jumped on the story.

Anyway the valuation of $1 billion -not as insane as the valuation placed by Microsoft on Facebook – was jaw dropping. Sure, LinkedIn has more value than plain vanilla me-too social networks but is it really worth a billion dollars? I ended up doing some back-of-the-envelope calculations while watching Boston Celtics celebrate their 17th NBA Championships.

The question of over-valuation had first popped up when I read about this round in May 2008 on Venturebeat . Techcrunch then reported that Allen & Co, the New York bank was helping Reid Hoffman’s company raise fresh capital at the $1 billion valuation.

So I decided to do a back-of-the-envelope comparison with XING with some of the publicly available data on XING, a European Social Network that is publicly traded in Frankfurt. It is a pretty good proxy for a business-focused social network, such as LinkedIn.

It has a market capitalization of about $300 million. It has has 5.71 million subscribers. XING had revenues of around $11.6 million at the end of first quarter 2008; about 70 cents per month per subscriber. That works out to about $52.30 per subscriber. For sake of comparison, Facebook’s reported $15 billion valuation works out to $125 per subscriber.

If you use those numbers, then LinkedIn’s rumored 20 million users are worth $1.04 billion. The company is adding about 1.3 million new subscribers a month, so by those estimates it should end the year at around 29 million subscribers. USA Today reported that LinkedIn was on target to do between $75-to-$100 million in revenues this year. Lets be generous and assume that they indeed do $100 million that works out to about 29 cents per month per subscriber (assuming that the number of subscribers at the end of the year is about 29 million.)

My back-of-the-envelope calculations show that if your user the value per subscriber of then LinkedIn’s $1 billion got a market valuation. On per-subscriber revenue basis, LinkedIn seems a tad overvalued, especially considering that their traffic is range bound, and the number of active uniques is showing a slight slump.

What do you guys think?

Update: Connie Loizos of PE Hub is spot on in saying that this video of LinkedIn VCs self-congratulating themselves made her cringe. Me to Connie.