Thinking Big

After a pretty disappointing 2010 (for several reasons) I am thinking big again, partly because of the recent success of other companies.

A much hyped IPO of LinkedIn got me thinking about their numbers. My short period of trading shares are long over, so I won’t speculate as to how over valued the current price might or might not be, or if I think it’s a good buy or not – I’ll just go over the basics.

Estimated 2011 sales = $375 million (last year $250 million)
Current share price = $88.00
Shares = 94.5 million
Market cap = $8,316 million

This means LinkedIn is trading at 22x estimated 2011 sales! To put this in perspective current Facebook valuations put it at 13.8x projected sales.

LinkedIn unlike Facebook get’s 70% of it’s revenue from subscriptions from business users, so it’s more like a SaaS (Software as a Service) company in this respect.

Salesforce.com Inc. (CRM) is a successful SaaS company, which currently is trading at 8.3x projected sales. Other SaaS companies SuccessFactors Inc. (SFSF) and NetSuite Inc. (N) are also trading in the 8-9x projected sales region.

To LinkedIn’s defence their growth rate is higher than these other SaaS companies so a multiplier between theirs and Facebook (let’s not forget LinkedIn IS a social network) is probably fair for the moment.

Another thing to consider is that the money and management behind LinkedIn were happy for the IPO to be $32 per share (the demand actually increased this to $45 when they listed). At their managements valuation of $32 their market cap would have been just over $3 billion, or 8x projected sales – which seems “fair” given the value of the companies I highlighted above.

What does this all mean? Time will tell if we’re in another bubble, but for the time being there are more social networking and SaaS companies you can add to this list that have had recent IPO’s or about to with similar positive valuations. This means there has never been a better time to start a high growth tech company.

If you can build a multi-million pound/dollar sales company in the next few years, even with a pessimistic valuation inline with the Dow Jones Internet Services Index of 3.7, it’s going to make you a good return.

And that is why I’m thinking big – with one company potentially sitting in the high growth internet sector and another servicing other tech companies I am perfectly comfortable that this is going to be a good place to stay for a few years.