LinkedIn Shares Nearly Double After IPO

Social-media companies, take note: LinkedIn Corp.'s swift rise on its first day of trading Thursday proves that U.S. investors are hungry for similar stories.

The professional-networking site's shares opened at $83 on the New York Stock Exchange, up 84% from its initial public offering price of $45. It was recently changing hands at $85.99 a share, up 91%, valuing the company at nearly $9 billion.

LinkedIn's IPO had priced at the high end of its expected $42 to $45 range, which was boosted by $10 earlier this week in the face of strong demand.
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The offering of 7.84 million shares—the biggest U.S. Internet IPO since Google Inc., analysts say—has been a controversial one, as many across Silicon Valley and Wall Street say that investors are being taken in by a new Internet bubble. But none of that deterred investors, who gobbled up shares of an offering led by Morgan Stanley, Bank of America-Merrill Lynch and J.P. Morgan Chase & Co.

LinkedIn is one of the best-known sites for career networking and recruitment, and its IPO launch provided investors with their first glimpse of what might lie ahead for other social Internet sites such as Facebook Inc. or Groupon Inc. Both companies, along with Twitter Inc. and Zynga Inc., have attracted a frenzy of attention from venture capitalists and well-connected individuals, who have been driving their valuations up in private financing rounds. Though none have registered to go public, hopes are running high that they will in 2011 or 2012.

As the first major U.S. social networking company to go public, LinkedIn's deal is viewed as a preview of sorts for those that remain private, with expectations that a name like Facebook will be in even greater demand. LinkedIn has more than 100 million members, a fraction of the 600 million plus that Facebook has attracted, and its job-networking function is considered less a part of its members' daily life than Facebook's broader role as constant source of updates on the lives of friends, family and romantic partners.

"In Silicon Valley, everyone wants this to be a success. More success means there will be more investments in new companies," said attorney Victor Shum, a partner in the San Francisco offices of Jeffer, Mangels Butler & Mitchell who advises technology firms on financing, mergers and acquisitions, and other business transactions. "If it works, there's going to be a big push from a lot of social media companies to try to get out before Facebook does. Because once Facebook comes out, they're not going to be able to get any analyst attention."

As on Facebook, anyone can post their profile on LinkedIn and search for others' free. But that's where the similarities end: LinkedIn is strictly professional, with job-hunters, hiring managers and their colleagues making business connections. That narrow focus means that its members generally fit a more affluent, well-educated profile.

That's definitely an asset for its business model; the company makes its money by charging businesses fees to recruit and advertise; it also sells premium subscriptions to members.

In 2010, revenue at LinkedIn doubled to $243 million and net income was $15.4 million, compared with a loss of $4 million a year earlier. In the first quarter of 2011, revenue also doubled to $94 million and net income rose 14% to $2.1 million from a year earlier.

The company expects its revenue growth rate to slow and warns that it won't be profitable in 2011 as it invests in what it calls future growth, such as technology and product development. It also warns that it expects that its results in the future could become more cyclical and seasonal.

LinkedIn is the only company scheduled to go public in the U.S. this week. A second offering, from biotech Advanced BioHealing Inc., didn't materialize after Irish biopharmaceutical firm Shire PLC instead acquired it Tuesday