Another potential valuation issue relates to LinkedIn’s revenue recognition method. LinkedIn recognizes its Hiring Solutions Revenue from job postings when the posting is displayed or over the contract period, whichever is shorter. This may cause revenues to be overstated in the current year if a contract runs into the next fiscal year. The overstated revenues would be extrapolated and multiplied into the future causing investors to over value the stock. In 2010 Hiring Solutions Revenue accounted for 42% of total revenues.
There are many factors that can cause investors to increase or decrease their valuation of a company. One important characteristic that impacts a company’s valuation is competitive advantage. LinkedIn is believed to have high
References: Brochet, Francois and Weber, James; “LinkedIn Corporation” Harvard Business School, 9-112-006, Rev: January 6, 2012 http://www.wikiwealth.com/discounted-cash-flow-analysis:lnkd http://www.tradingfloor.com/posts/linkedin-valuation-exposes-pe-flaws-1435998927 http://www.businessinsider.com/the-truth-about-linkedin-2011-5#ixzz2drbW0sjM http://seekingalpha.com/article/1184401-afraid-of-linkedins-valuation-you-shouldnt-be http://wallstcheatsheet.com/stocks/is-linkedins-valuation-stretched.html/