LinkedIn: A valuation assessment of the fair value of LinkedIn

Henrik Lysgaard Jensen & Bartosz Smólczynski

Student thesis: Master thesis

Abstract

The purpose of this thesis is to estimate the enterprise value of LinkedIn Corp and ultimately the fair value of the company’s stock. Estimating the stock price will be done through thoroughly identifying and analyzing the strategic and financial factors impacting the performance of LinkedIn. In developing the strategic analysis, we have utilized well‐known frameworks including a revised version of the PESTEL analysis, the Five Forces of the industry and a SWOT analysis to synthesize the findings. Moreover, less notorious frameworks such as the network effect has been applied in order to fully grasp the nuances of a fairly young industry. The strategic analysis reveals that LinkedIn first and foremost possess a strong position in the market as a market leader with strong brand value and vast financial resources. The company has significant geographical presence in the US and Europe and remains to capture massive potential in growing market economies including Asia Pacific and Latin America along with new and developing economies. During the relatively short time period of LinkedIn, the company has managed to realize explosive growth rates which is mainly due to a strong management team and advanced technological know‐how developed by the company. Given that the company is considered a high‐growth company, we have employed methods proposed by leading academics in the field of valuation to establish the right methodology in assessing the company. Given that the company has already been introduced on the stock market, but still remains in its development phase, the right balance between the traditional methodologies of historical performance analysis and high‐growth company forecasting has been applied in order to provide the most accurate analysis combining theory with practice. The valuation is conducted through the utilization of the discounted cash flow (DCF) model, which is rooted in the forecasting of LinkedIn financial performance based on the combined analysis of the strategic and financial analysis. Furthermore, this value is subject to a sensitivity analysis. The DCF valuation approach yields a share price of $108 as the fair value of the stock. This illuminates a discrepancy between the fair value and the market price of the stock at the cut‐off date ($102.64) concluding that the market share price of LinkedIn is undervalued. This paper will further explore and discuss the underlying drivers for the value creation in the company.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2013
Number of pages155