Maybe Reid Hoffman Won’t Be an Instant Billionaire: Updated

Reid Hoffman. Photo by Stephen Lam for Venture Capital Journal

Am I the only one who was disappointed with LinkedIn’s financials when it filed its S-1 today?

(Update: Jim Breyer, a GP at Facebook investor Accel Partners and a member of Facebook’s board, tells Bloomberg TV that he wouldn’t take LinkedIn public right now.)

The first thing I did when I opened its S-1 was to look at the stock holdings of Reid Hoffman (pictured), its founder. Wow, I thought to myself, Hoffman owns about 19 million shares, making him the company’s largest shareholder, with a 21.4% stake. Assuming – conservatively, I thought – the stock goes to 100 bucks within six months, Hoffman is sitting on just under $2 billion. (Note that LinkedIn has not priced its shares yet.)

The company’s VC backers would also make a mint under my initial thinking, most notably Sequoia Capital, with 16.8 million shares, or an 18.9% stake; and Greylock Partners (where Hoffman is a general partner), with about 14 million shares, or a 15.8% stake. (Bessemer Partners holds about 4.6 million shares, or a 5.1% stake.) (See table below.)

Then I looked at LinkedIn’s financials and I felt deflated. Net revenue for the first nine months of 2010 was just under $162 million. (See table below.) The company brags that its revenue doubled from the same period a year earlier, but that is still a relatively small figure for a company that will be 8 years old in May.

In one respect — average revenue per user — it appears that LinkedIn is doing relatively well. Mind you, I’m relying on data from a report from Business Insider in March of last year. BI divided 2009 revenue by average monthly unique visitors for several Internet companies and came up with the following: “Google gets $18.44 per unique, AOL (thanks to its subscription business) gets $12, Yahoo gets $6, Microsoft $4.42, Facebook $3.09, and Twitter $0.62.”

(If someone has some hard numbers that tell a different story, I’d love to get a peek at them.)

I have no idea if BI’s numbers are accurate, but if they are, then LinkedIn isn’t terribly far behind Facebook — with revenue of $2.48 per unique user for the first nine months of 2010, based on an average number of 65 million monthly unique visitors, according to its S-1.

That said, I still have a hard time seeing how LinkedIn achieves a $1 billion run rate without making some significant changes to its conservative business style.

For example, user subscriptions accounted for the largest chunk of its revenue stream until last year. Subs still accounted for 27% of the total ($44 million) in the first nine months of 2010, compared to $51.4 million for “marketing solutions” (ad revenue) and $65.9 million for “hiring solutions,” paid services that, in part, allow companies to ID job candidates based on industry, job function, geography, experience, etc.

The management overview in the S-1 states, in part: “Our financial objective is to create sustainable revenue and earnings growth over the long term. To best achieve this objective, we focus on our members who create their profiles on LinkedIn and utilize the majority of our solutions at no cost. We believe this approach is the best way to continue to build a critical mass of members resulting in beneficial network effects, which promote greater utilization of our solutions, higher levels of engagement and increased value for all of our members.”

If LinkedIn really believes the best way to achieve growth is to keep the service free, then maybe it should do away with its subscription service altogether and really ramp up its advertising efforts. A user base of 90 million professionals neatly organized into demographic groups sure seems like a pretty compelling thing to offer advertisers.

What do you think? Am I being too harsh? Am I unfairly comparing it to the juggernaut that is Facebook?

For the record, I like this company. I use its service and I’ve never had a problem with it.