Did LinkedIn Just Make Facebook Worth $100 Billion?

Since I’m based in Silicon Valley, I hear lots of buzz about Facebook, but not so much on LinkedIn (NYSE:LNKD).�

Of course, this changed last week with LinkedIn’s red-hot IPO.� There were certainly many smiles as startups realize that there may be a new wave of wealth creation.

But what does the LinkedIn deal mean for a much-anticipated-but-yet-to-be-announced IPO by Facebook?

It�s hard to tell.� The fact is that LinkedIn is not a true consumer Internet play, but it does have social networking in its DNA � and this is what attracted investors.� They desperately want to get a piece of this market.

If anything, the LinkedIn IPO will likely spur the filings of other social networking firms like Twitter, Zynga and Groupon.� It�s a good bet that Wall Street banks are working 24/7 to move things forward.

Since LinkedIn isn’t a pure consumer operator, its valuation is likely only a floor for Facebook.�

Assume that LinkedIn generates $500 million in revenue this year, the forward price-to-revenue multiple is about 18.� Applying this to Facebook, which is expected to generate $4 billion in revenue in 2011, the valuation comes to $72 billion.� This is actually within the range of the latest trades on virtual markets like SharesPost and Second Market.

But over the next month or so, expect an escalation.� It wouldn’t be surprising to see valuations of more than $100 billion.� Basically, investors are likely to place a higher multiple on Facebook.

How can individual investors play this?� Should you buy shares in the virtual markets?� That brings other issues — the trades can easily take a month and the fees can add up to thousands of dollars.� Besides, the transaction amounts are typically in the six figures.�

Despite this, you can perhaps benefit from the Facebook IPO by using a back-door strategy.� As I mentioned in an earlier article, it is probably better to wait until about six months to buy shares of LinkedIn.� The reason is that this is when the lock-up agreement expires, which allows the founders, venture investors and employees to start selling their shares.� The result is usually downside pressure on the stock.

In fact, this will happen a few months before Facebook is expected to have its IPO.� In other words, as the excitement increases for this offering, companies such as LinkedIn will likely see a rally.

True, as with any strategy, it is not fool-proof.� But given that Facebook is likely to be a mega-IPO, it’s reasonable to assume stocks in the social-network arena will benefit.

Tom Taulli�s latest book is �All About Short Selling� and he has an upcoming book called �All About Commodities.�� You can find him at Twitter account @ttaulli.� He does not own a position in any of the stocks named here.