Random note: It seems to me that that KK would be the appropriate unit for millions (thousand-thousands) and MM would be Million Millions or (10^12, or trillions.
I rarely see MM used to denote a million outside the financial world. I have never seen a job, for example listing remuneration as "circa 120M" meaning 120,000
FU money @ $7 million requires about 6% ownership.
And that's assuming their wasn't a high multiple liquidation preference for any of the investors.
[Investors here: http://www.slideshare.net/about/investors]
That's not to say a couple of hundred thousand dollars for being an employee isn't bad. But the chef isn't going to become a millionaire.
There is absolutely nothing wrong with shooting for a massive exit, but I don't think it is reasonable to hate on a multimillion dollar exit.
856 'Underperform' to 196 'Outperform'? Sounds like somebody is bearish! (disclaimer: as i'm sure is quite obvious the Motley Fool community KNOWS EVERYTHING and is NEVER WRONG. coughcough)
Consider a company with $100M in revenue, $1M in profit, and a market cap of $1B. PE is 1000. Now say this company has a shot at doubling revenue in the next few years without incurring additional cost. They will then have $200M in revenue, $101M in profit, and the PE will be 10.
Just looking at P/E in isolation is like judging a programmer by how fast they can type. You need to take a broader approach to reading financials and understanding the underlying business.
I haven't followed LinkedIn close enough to have an opinion on the current valuation. You may be right that it is overvalued, but the PE ratio isn't a very good indicator in isolation of expected future earnings.
Can someone provide a concrete example of a company that has doubled revenue in a few years without incurring additional cost? I realize that it is possible, but I'd love to see where this has actually occurred.
It is not uncommon for small pharma companies to have 1000% increases in revenue with little cost increase, especially if the companies don't manufacture or do marketing and just take royalies from big pharma.
 My memory is not perfect, but I was invested at the time and paying close attention. I remember being blown away that their revenues doubled and they only cost they added to the business was mostly non-search related activities.
As long as you believe LinkedIn can increase their revenue without adding to costs, their current P/E is kind of irrelevant.
This is why investors basically hate consulting companies (since revenue/earnings scale linearly -- in some ways, sub-linearly, since you have to hire more layers of manager), and love products selling zero unit cost products or services directly online.
Something like LinkedIn probably does have very little sales cost related to selling a higher end account, and little marginal cost to actually providing it.
Plus, LinkedIn is a network, so the more users use it, the greater value they each get from using it, and so the higher the revenue per user possible.
Things to watch out for are huge revenue/low earnings when you're near max revenue (so, a product which can only sell to a market of maybe 10000 people worldwide, 9500 of whom already use it, and who are paying a price which is only break-even for you -- adding the extra 1k users won't really get you to good margins), or services, like Groupon, which have huge sales costs to produce incremental dollars of revenue (even if the actual product is basically free to provide).
I don't think there is any business that sells something with zero marginal cost. Even if LinkedIn grows significantly without any marketing and sales activities, they still must deal with:
More users == more servers
More users == more support staff
and on and on.
Use Google and Facebook as classic examples.
And if you aren't getting more users, then you are ramping up marketing efforts to do so.
While LinkedIn is a definite success story, I'm not buying it that they are running a zero marginal cost business. I don't believe that anyone is.
First, P/E ratio is the Market Cap/Earnings (earnings = profit)
The basic way to get earnings is to subtract all expenses from revenue. (this is an overly simplistic definition, but it is mostly right, almost all the time).
So you have:
Gross Revenue - Expenses = Earnings
What is left out of this simple definition is "operating leverage". Operating leverage is the concept that you have a set of costs that don't move much no matter how much your revenue moves. Most internet companies have a lot of operating leverage.
So lets take a hypothetical company:
Quarter 1: (Revenue) $100m - (Expenses) $99M = (Earnings) $1M ..... All with a market cap of $100m, the P/E would be 100.
Now, if expenses are mostly fixed, (think lots of engineers salaries which have most everything running in macros etc.) and the revenue increases by 5% what is the new PE?
$105m - $99m = $6m .... all with a market cap of $100m, the new P/E would be about market average of 16.66
--You could do the same example if you drop your long term projections on R&D, or acquisitions or any number of expenses.
Wondering whats the goal of LinkedIn for this acquisition? It is not a people acquisition. And SlideShare is already integrated with LinkedIn's platform. So I'm curious!