The Facebook (FB) IPO has put the entire social media and Internet space in turmoil. When non-correlated business models sell off as if every company were identical, be alert to opportunity.
The main issue with Facebook, from my perspective, is a business model predicated on advertising revenue. The cyclicality of advertising combined with uncertainty of how FB is going to monetize the fast-growing and dominant user base accessing via mobile for free is a serious issue. I have no doubt that over time FB, due to its sheer user population and small current penetration of global advertising spend, has an enormous long-term opportunity.
But the risks warrant a valuation discount and not the obvious premium Mark Zuckerberg and his team was able to strong-arm Morgan Stanley bankers into accepting.
With the troubled IPO tainting the social media and Internet stocks all around FB, it is worth noting that some social media companies are structured dramatically different, yet they are selling off in sympathy. Specifically, LinkedIn (LNKD) is worth a look.
LinkedIn shares little from a business model perspective with FB. Importantly, LinkedIn generates the majority of its revenues from subscription-based services like their flagship recruiter product. This opportunity is still early as only 9,200 corporate customers out of an addressable market sized at more than 200,000 worldwide employers currently license access to their database.
The value of LNKD's 150 million members likely will also prove to be more monetizable than FB's over time. While currently focused on three revenue lines --hiring solution, recruiter and marketing solutions -- the expandability of new business lines could offer further subscription-based services. The company has already alluded to its desire to enter the sales-lead generation business. After all, LNKD knows what 150 million working professionals specifically do on a daily basis. This information is self-updated and current to every little professional achievement we collectively accomplish.