News Corp and LinkedIn - What’s the deal?

Nov 28, 2007 – 08:46 by Ryan

There is a hot rumor going around that News Corp is working on a deal to acquire LinkedIn. We’re going to dig into this match :-)

Rumors and Theories

VentureBeat believes that News Corp is interested in LinkedIn to bolster the declining Wall Street Journal classifieds business. We think this might be a nice enhancement for WSJ but that other News Corp properties stand to gain more from the acquisition, namely MySpace. We think the WSJ integration will probably work its way around but imagine that MySpace will be the number one priority. We see the stagnant/declining MySpace traffic as a much larger leak in the dam.

Read/WriteWeb believes that an acquisition by News Corp would increase the pressure on Facebook to join OpenSocial. If both MySpace and LinkedIn hadn’t already joined the OpenSocial network, we would give more credibility to this statement.

What is Murdoch thinking?

MySpace has announced that they will release a friend feed, privacy controls, application platform and an ad network. The beauty of these announcements is that they all came after Facebook already released products in these categories.

Outside of content distribution it appears as if the innovation canister has run dry at MySpace. We think Murdoch needs to clean house at MySpace and bring in people who can give the property a technology advantage. Perhaps this is the real reason behind the acquisition of LinkedIn.

LinkedIn’s Pipeline

LinkedIn must have something special in their product pipeline if they’re discussing a sale. LinkedIn has stated that they have been profitable since March of 2006 yet they took $12.8M in venture capital in January of 2007. What are they spending the money on? Take a look at our previous post that estimates Facebook’s platform costs.

If LinkedIn doesn’t have a stellar product in their pipeline they may be spooked by their drastic decline in traffic last month.

12-06-2007 UPDATE: It looks like the initial Compete numbers may have been off. Originally, they showed a 31% decline in LinkedIn’s traffic in Oct of 2007. Hmm…

What about Google?

Google is trying to sit on top of all social networks so this really doesn’t impact them. Google is already in bed with News Corp so they’ll only have to worry about fewer OpenSocial partners to integrate with.

LinkedIn Valuation

We’ve heard a couple of interesting numbers about what people think LinkedIn is worth. We’re going to assemble a valuation based on publicly available data and a couple of assumptions.

Users: 16M
2007 Growth: 264%
Oct 2007 User Visit Growth: -31%
2006 Revenue: $10M
2007 Revenue: $25M (guesstimate based on 2007 user growth)
Monthly Visitors: 6,631,828
Monthly Page Views: 74,939,656

Based on their traffic and revenue it’s hard to imagine that LinkedIn would fetch that high of a price. LinkedIn’s most valuable asset is actually your data or their social network. If LinkedIn is able to fetch $300 per user then they are looking at a $4.8B valuation.

The main problem with LinkedIn’s traffic is that their users are not visiting the site much. Last month only 1.9M or 12.3% of their users visited the site. If you compare this to Facebook’s 50% of total users visiting the site each month you can see that $300 is way out of the park for LinkedIn. We think that the LinkedIn users are worth more along the lines of $35 each. This puts the valuation of LinkedIn somewhere around $560M. At this price LinkedIn would sell at an estimated revenue multiplier of 22.

Of course you can’t discount social network hype. They may very well get an astronomical sum. Facebook was able to raise capital on a revenue multiplier of 115. If LinkedIn is able to sell for $560M then the founders, investors and employees should all be really happy.

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