May 20, 2011

LinkedIn Soars On IPO, Shares Double On First Day

Shares of LinkedIn Corp. more than doubled in their first day of public trading on Thursday, evoking memories of the late 1990s tech bubble.

Shares skyrocketed to more than $100 per share at times, before closing on Thursday at $94.25 on the New York Stock Exchange. 

The business-oriented social networking service unveiled its stock at $45 per share at the start of the trading day -- far more than the $32-35 range announced just one week earlier -- and valued the company at $4.25 billion.

The company, the first major U.S. social media firm to sell its shares to the public, generated revenues of $243 million and a net profit of $3.42 million last year.  If its share price remains near $100, the company's market value will be close to $10 billion.

The LinkedIn debut was the first major test in years of demand for new Internet stocks.  Indeed, it was the most valuable U.S. Internet IPO since Google became a publically traded company in 2004, which could entice other social networking firms to take their companies public. 

The frenzy to get a hold of LinkedIn's shares raised comparisons to the dot-com bubble that infamously burst in January 2000, sending the Nasdaq stock exchange plummeting. Even today, the index remains 40 percent below its peak.

Investors have been scrambling for stakes in other popular social networking firms such as Facebook and Twitter, which have remained private while growing their member base.

"They want exposure to those types of companies, social networking companies, and LinkedIn was their first chance," Morningstar analyst Bill Buhr told the AFP news agency.

"It looks like everybody took it."

LinkedIn reaped the benefit of being a "proxy" for Facebook and Twitter in the eyes of investors, Buhr added.

"That's got to be part of what's driving this."

"It's not yet a bubble," he said.

"We need to see what the other firms do."

Facebook is believed to be planning an IPO sometime next year.

Analysts are keeping a keen eye on whether LinkedIn lives up to its high expectations in the next year or two.

Morningstar told its clients that shares of LinkedIn seemed overpriced.

"The industry is young, but we are very positive on the prospects for the company," wrote Morningstar senior analyst Rick Summer said in a blog posting.

"Still, even good companies should be bought for less than they are worth."

Renren, China's biggest social network, went public on May 4 at $14 per share.  Its shares soared in the first few days of trading, but have since fallen to $13.70.

Although not nearly as popular as Facebook, LinkedIn has emerged as a widely used directory for the professional world.   As of March, the California-based company had 102 million members in over 200 countries and territories. 

LinkedIn gets about two-thirds of its revenue from fees it charges for greater access to the website.  The company has also made money from business surveys of its members and from its service that offers career advice to college graduates.

The rest of the company's revenue comes from Internet ads.

LinkedIn's top venture investors include Sequoia Capital, which will own 17.8 percent after the IPO; Greylock Partners, which will own 14.9 percent; Bessemer Venture Partners, with 4.8 percent; and Bain Capital Ventures, which is the only one of these firms selling shares in offering, leaving it with 3.9 percent.


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