LinkedIn has begun trading on the New York Stock Exchange, representing the first US-based social media firm to go public.
In a successful IPO, LinkedIn – the social networking site aimed at professionals and the business community – raised $352.8m after raising the expected price range by 30 per cent from $32-35 to $42-45 a share and selling 7.84m shares.
This gives the company a high market valuation of $4.25bn, over 200 times its earnings for the last year.
LinkedIn had been Silicon Valley’s most anticipated offering since Google in 2004, and the stock did not begin trading until more than half an hour after the New York Stock Exchange opened because officials were still trying to match supply with the roaring demand.
LinkedIn’s meteoric rise reflected pent-up demand for hot social-networking companies, whose stock up to now has only been available to the well-heeled.
Social network Facebook, microblogging site Twitter and game maker Zynga are among the others expected to follow, perhaps within the coming year.
Facebook is currently valued at $79 billion on private exchange SharesPost, a number higher than the market caps of Hewlett-Packard (HPQ) and Disney.
LinkedIn, which offers a forum for business people to swap contact information and resumes, has fewer users than those sites, but some analysts had predicted its stock would soar because it’s the first US social media heavyweight to go public.
However, many observers questioned how a company with 2010 revenues of $243 million could be worth so much, especially given that it has said it expects to lose money next year as it ramps up growth.
Most of LinkedIn’s revenue comes from fees it charges for recruiters, as well as from online ads.
Commenting on the IPO, Alison Hyde, Technology Fund Manager at Cavendish Asset Management, said: “The runaway success of LinkedIn’s market debut is testament not so much to the company itself, but rather the sheer levels of investor excitement surrounding the burgeoning social media sector. It demonstrates a healthy appetite for shares in social network businesses, and in many ways is serving as a trial run for the big one – Facebook. Speculation as to when the current crop of big names in social networking – Facebook, Twitter, Groupon, and Zynga – will go to market has been building to boiling point, and LinkedIn’s flotation has reaped the rewards of this general pressure on the sector. We may be witnessing the opening of the floodgates, the beginning of a bumper season of social media IPOs; the others can only continue to raise money via the secondary markets for so long.
“The lofty valuations we are seeing have led to inevitable talk of a new bubble, and even comparisons to the frenzy preceding the dot com bust of the new millennium. The parallels however, are flawed: the dot com bubble saw outrageously high valuations for IPOs of companies that were barely more than a plan on paper. LinkedIn is an example of the relative maturity of the sector compared to the bad old days; it has been operating for years, pruning its business model, building its network, and now has proven profitability. Investors are far savvier when it comes to the web these days, as are we all. Nonetheless, it is understandable that the size of some of these valuations would raise concerns.
“One less positive aspect of the LinkedIn IPO, however, concerns the dual stock structure, whereby the original owners retain a level of company control disproportionate to material ownership, and at the expense of their new shareholders. Yet the example of Google shows that this approach may yield benefits for all in that the original visionaries behind the company are able to maintain the direction and culture of the company – which in Google’s case is central to its success – unhindered.”
