Facebook vs LinkedIn — Which Stock Has More Potential?

Well, Facebook has gone public, and it’s underwhelming most observers by hovering around $40, around 5% above its IPO price of $38.  That’s all well and good for Zuckerberg, who now can say the company is definitely a $100B market cap business for now.  But for shareholders, is it a good time to get in?  Or should people go for another, more clever way to get into social networking: LinkedIn?

Colin Lokey questions whether LinkedIn really is the superior business model to Facebook.  LinkedIn currently makes its money through its recruiting tools that allow companies to find better employees on the LinkedIN network.  They also make money through other streams, but this comprises the majority of their revenue and is a quantifiable product, as opposed to Facebook’s current model of ad sales.

He goes on to state the big point: Facebook and LinkedIn are exponentially different when it comes to revenues:

“…the comparison is downright embarrassing: Facebook’s 2011 net profit was $1 billion while LinkedIn managed a meager $12 million (Facebook made 83 times as much money).”

This is an excellent point, and reiterates the point that Facebook with its massive revenue is still trading at a discount to LinkedIn, and that may exert downward pressure on LinkedIn as people shift their money around.  LinkedIn is currently at 170 times forward earnings into 2013, and that makes the stock quite expensive.  People are invested in it based on the expectation that it will continue to surge, but even if it does, it has to match some huge expectations without making any blunders or seeing costs rise too much.