Simon Harris, a senior manager in the valuations practice at PwC, said: “Profit multiples don’t work very well when it comes to valuing these companies, because some of these companies are either not yet making profit, or not yet focusing on profits.
“Discounted cash flows don’t work very well either, as it is extremely difficult to forecast the future and the company’s risk profile. Then you look at revenue or user multiples.”
LinkedIn is actually valued pretty conservatively when viewed on a value per user basis, according to a PwC report, with a multiple below that of Virgin Media, Facebook and ITV.
However, value is notoriously difficult to extract from users, and for every example of a firm which has successfully monetized its user base, there are many more which have failed to do so.