LinkedIn Corporation

Abstract:     
The purpose of this case is to help students critically evaluate the market value of LinkedIn's stock following its recent IPO. In the context of strong investor appetite for social media companies, LinkedIn is the lamp bearer among U.S. companies in that industry that are considering tapping into public markets. The case can serve to illustrate the challenges of valuing an early-stage high-growth company with a great deal of uncertainty about fundamental value and how quoted prices might reflect expectations that are hard to justify. Regardless of which valuation method is employed (e.g., residual income, discounted cash flow, multiples), the case provides a platform (i) to map the firm's key success and risk factors into forecasts and estimates for its future performance and cost of capital and (ii) to critically assess the implied assumptions underlying the market's expectations. The case is best suited for a course on business valuation at all levels (undergraduate, MBA, executive programs).

Learning Objective:
The goal of this case is to have students critically assess the growth, profitability and risk expectations embedded into a company's stock price when concerns of overvaluation are pervasive. The students can be asked to come up with their own valuation based on the company's fundamentals and comparables, a difficult exercise for a high-growth company in the most talked-about emerging industry at the time. The case also lends itself to a discussion on the emergence of private stock secondary markets and on institutional aspects of public offerings such as IPO (under)pricing or quiet periods.

working papers series