FORTUNE — Amid the anger this week of Facebook investors, the embarrassment of the company’s underwriters and the schadenfreude of its detractors, a question has been bugging me: If so many investors are skeptical of Facebook’s (FB) overvalued IPO, then why are they still so positive on LinkedIn (LNKD)?
Like Facebook, LinkedIn is a social-media pioneer that has built up a steadily growing and profitable business. Both have achieved what few social networks have by creating a community of people who regularly interact with each other. Both exploit the personal data of their users to make money. Both entered the stock market as proxies for one of the hottest new areas in technology.
And both went public in mid-May: Facebook in 2012, while concerns about Greece and the EU were weighting down broader markets; and LinkedIn in 2011, when concerns about Greece and the EU were weighting down broader markets. But Facebook is trading around 16% below its offering price, while LinkedIn has gained 130% from its offering price.
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Of course, LinkedIn also sagged after its initial debut. After more than doubling on its first day to $122.70, the stock had drifted down as far as $60.14 a month later. Earlier this month, LinkedIn had rallied back to $120.63. On the one hand, that may give hope to Facebook investors for a similar rebound over the next year. On the other, it may not. Investors in Facebook warrants are buying twice as many puts as calls, with many betting the stock will be below $22 a share by December.
Such bearishness is understandable, given that Facebook’s offering price of $38 a share valued the company at 26 times revenue and more than 100 times profits (it’s now down to 21 times revenue and 74 times earnings). But LinkedIn is trading at 17 times its revenue and about 700 times its recent earnings. And while Facebook’s stock has dropped 24% from its initial trading price last Friday, LinkedIn is down only 1% over the same period.
Much of Facebook’s slide is due to the ham-fisted bumbling of its IPO – notifying favored investors of weaker growth forecasts from the company and face-saving securities analysts, then announcing more shares for sale by insiders while lifting the offering price. Just how Wall Street managed to slap a sell rating on Facebook shares before the IPO is a tale yet to be told.
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Last Friday, LinkedIn’s stock didn’t move much for the first couple of hours. But once it became clear that Facebook’s newly listed shares were faltering, LinkedIn began to fall, closing the day down 6% while Facebook closed largely unchanged from its offering price. Other web stocks also fell on the Facebook effect: Zynga (ZNGA) was down 14%, Groupon (GRPN) and Pandora (P) were both down 7%. And as of Thursday’s close, LinkedIn is down about 1% since Facebook started trading, as are Pandora and Groupon.
That may suggest that investor disenchantment in Facebook hasn’t spread to other recent web IPOs — except Zynga, since its revenue relies heavily on Facebook’s fortunes. But it doesn’t explain why investors would return to LinkedIn, when its PE is so much higher than that of Facebook’s.
The reason may be that investors are looking at other metrics, ones that suggest more future growth than Facebook was promising even before its (unofficially) lower guidance. In the quarter ended March 21, Facebook’s revenue rose 45% to $1.06 billion. LinkedIn’s grew more than twice as fast: 101% to $188 million.
That might look like an apples-to-oranges comparison, because Facebook’s revenue in the most recent quarter was 5.7 times that of LinkedIn’s. But consider two things: First, that only one year earlier, Facebook’s revenue was 7.7 times that of LinkedIn’s. So in the space of one year, that gap has narrowed significantly. As Facebook begins to face limits to its growth in the next year or so, the ratio could shrink even more.
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And secondly, although LinkedIn is noticeably smaller, it’s already getting more money from each user than Facebook. In the most recent quarter, LinkedIn took in $1.83 for every monthly user. Facebook took in $1.17. The number of LinkedIn’s monthly active users grew 37% to 13 million over the past year. At Facebook, the number grew 33%.
So the number of users are growing comparably fast on both Facebook and LinkedIn. But as they do, LinkedIn is doing a better job of getting revenue from each user. And that’s all investors need to know: As Facebook grows, it grows — from a revenue standpoint — indiscriminately. It reaches out to users who offer much personal value to each other, but little monetary value to Facebook investors.
LinkedIn, meanwhile, makes more money from each of its users even if they don’t spend eight hours per month on its social network. (By one count, it’s only 17 minutes per month.) But LinkedIn has managed to mine those precious minutes for all they’re worth–– not through serving ads, but through job postings and premium subscriptions, which account for 54% and 20%, respectively, of LinkedIn revenue. Display and other ads only account for 26% of LinkedIn revenue.
But ads account for 82% of Facebook revenue. And that’s the real apples-oranges difference between Facebook and LinkedIn. Facebook relies heavily on advertising. And even though it’s done a much better job of wringing ad revenue from its users than MySpace, it’s still a social media company. Which means, on Facebook, people come for the content, but they don’t click on the ads. That’s why no one was surprised to hear that General Motors (GM) was disenchanted with Facebook.
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LinkedIn, meanwhile, turned its social network into a job-hunting and recruitment site. It took the old adage that social media isn’t a destination but a feature directed at a specific strategy. In doing so, it found a market it can serve for years, while Facebook invested billions in a platform that could be irrelevant tomorrow. (This single tweet made me wonder if that wasn’t already happening: Didn’t Facebook build its success on listening to people under 25?)
Put another way, LinkedIn is the social-media version of a printed-out resume. Facebook is the social media version of… what, a high-school cafeteria? Where you worry about whose table to sit at, who will eat with you and who you don’t want to eat with?
Both of those are real-life situations with a lot of emotion to them. And social networks are driven by nothing if not by human emotion. But some of those emotions are about being an adolescent, and others are about being an adult finding one’s place in the world. That is, one of these social networks is more grounded in the real world where people grow up.
Will the hundreds of millions of social media users grow up? Investors seem to be betting they will. They are – this week at least – pinning the future on LinkedIn.
Kevin Kelleher is a writer in the San Francisco Bay Area. You are always welcome to sit at his cafeteria table on Twitter.
