LinkedIn IPO Is Biggest Since Google's--But Is It Too Big?

UPDATE 10:41 AM ET: LinkedIn shares, under the symbol LNKD, increased 84 percent when trading started Thursday morning on the New York Stock Exchange, debuting at $83 a share and hitting $90 a share. That places LinkedIn's value at around $7.5 billion.

UPDATE 2:49 PM ET According to ReadWriteWeb, the price of LinkedIn shares reached $122.70, then dropped slightly--as of 2:49PM ET, they were trading at around $104.42.

PREVIOUSLY: The initial public offering for LinkedIn, a career-oriented social networking site, marks the biggest Internet company IPO since Google went public in 2004.

Shares of the eight year-old company, which made just $15.4 million in profit in 2010, were priced at $45 apiece, bringing the company's total estimated market value to around $4.25 billion, around $1 billion higher than initial estimates. The valuation makes LinkedIn worth more than well-heeled companies such as Kodak and RiteAid.

Previously derided as a "Facebook for losers," LinkedIn's sky-high valuation suggests founder Reid Hoffman--now reportedly worth over $800 million--may be having the last laugh. At the same time however, it raises questions about the sustainability of these web businesses, and whether the bubble could burst.

So are investors paying far too much for LinkedIn--essentially a modern Rolodex--and will the company come to look less like Google, which continues to rake in cash, and more like the failed web firms of the 1990s?

The company, which has over 100 million registered users, boasts three sources of revenue: online ads, premium subscriptions, and charging business for recruiting tools, or what the company calls "hiring solutions."

LinkedIn is one of the first social networking sites to go public, and a slew of other social media companies, including Groupon and Facebook, are rumored to be preparing their own IPOs. This comes amid renewed concerns of a tech bubble that many fear may be inflating values of Internet companies, some of which have attracted millions of users, but have yet to demonstrate a sustainable business model.

Many note that demand for LinkedIn shares has been buoyed by investors' hunger for social media companies and that LinkedIn benefits from being the first of its kind to go public.

"People are really looking forward to a company like this," Internet entrepreneur and investor Max Niederhofer told Bloomberg. "They've been reading about Facebook, Twitter, Zynga, and Groupon in the press and this is the first company of that ilk that's coming to market."

He also points to challenges, including rumors that the company has a "culture problem."

Analyst David Menlow, for one, is skeptical of LinkedIn's chances for continued success and argues that the share price is far too high.

"The mentality that’s out there is, ‘We can’t get into Facebook, we can’t get into Twitter or Groupon or whatever, so we’ll pay whatever it takes to get into this uncorrelated proxy for those offerings,” Menlow told the Daily Beast, adding that he would suggest putting investors that splurge on shares of the company on "suicide watch."

The BBC is more optimistic, noting, "The trick it's pulled off so far is to become increasingly useful as a free service to members looking to advance their own careers, while earning money from businesses using LinkedIn as recruitment and advertising platform."

And Business Insider's Henry Blodget, in an analysis of of how Wall Street provides estimates of a company's value, argues that LinkedIn's valuation was intentionally low-balled: "[T]he company going public gives analysts absurdly low 'guidance' and the analysts turn this absurdly low guidance into absurdly low 'estimates.' And then the company proceeds to 'beat expectations' even if they fall short of their own internal targets." He adds, "We can conclude that professional investors think that these estimates are absurdly low and that LinkedIn will do much, much better. And if the professional investors are right, they will get the added benefit of having LinkedIn 'beat expectations' every quarter and having analysts 'raise estimates' every quarter, even though LinkedIn isn't actually beating expectations and analysts aren't actually raising estimates. "

According to Bloomberg, LinkedIn's shares may open at between $78 and $82, far higher than the $45 pricing.

Comments

[Peter Combs]

01:04 PM on 05/23/2011

Linkdin is a pure retail play...custom made for folks who don't read earnings or any of the numbers.

I suspect this thing is going to go down hard and sooner than most think.

[DFWMoneyCoach]

09:50 PM on 05/22/2011

Of course it is overvalued.....there is an unthinkable amount of liquidity chasing investment returns.....unfortunately most countries, along with their banks are bankrupt....so much of this wealth much like the market value of LinkedIn's shares does not exist.

[Ivyleaguequaker]

05:11 PM on 05/22/2011

I expect that it's price will start deflating soon.

[Jack Daniels Esq]

01:36 AM on 05/22/2011

More useless hype, another scam, like selling hens teeth, why would any business use it

[rda1911]

08:24 PM on 05/21/2011

As a non union company with no legacy costs has to be worth more than GM or a treasury bond

[Arts4u]

06:56 PM on 05/21/2011

All of the social media sites are extremely overvalued. This is because the traditional blue chip companies stocks have been in the quicksand for years.....

People need to drive something up to non-sustainable, foolish levels... this decade it's social media.

[Eric Flanagan]

06:58 PM on 05/21/2011

Agreed. We're on our way to our next bubble.

[LazyRepubs]

03:58 AM on 05/21/2011

It is overvalued, as is Facebook and other social networking sites. You have a great disparity between what we put their value at and the actual value of their physical assets. The value of their employees and their skills can tomorrow move to some other company. Those who use the site can, with the click of a mouse, move to some other site. As a shareholder you are left with some recorded data on an old clunker piece of technology you could not sell on Ebay.

[lvbrun]

12:58 PM on 05/20/2011

Yes, it's too big. It's another example to support the tech bubble in the making theory.

[mc53]

11:55 AM on 05/20/2011

I've used Linkedin. Worthless.

[84BADGER]

11:28 AM on 05/20/2011

Has Elvis left the building?

[Arts4u]

06:57 PM on 05/21/2011

Not until they suck whatever money that can be sucked out of him yet.....

[SF TKF]

11:09 AM on 05/20/2011

Why does it have any value at ALL? This is what I can’t figure out. It’s lunacy to place value on a free social network. All they're doing is creating another tech bubble.

[Arts4u]

06:58 PM on 05/21/2011

But you know... they sell all that great advertising that no one looks at......;)

[PrayingforReagan]

10:11 AM on 05/20/2011

How do I short this stock? They have been giving away their services for free to 90% of users, now they want to ask those customers to pay. Lets see how that works.

[ecrichert12]

08:49 PM on 05/20/2011

Premium subscriptions account for the smallest of its three revenue segments, which was not the case two years ago. It makes its money off corporate postings and ads more than Joe Blow paying $9 a month.

[US Patent 7089319]

08:54 AM on 05/20/2011

Did anyone even read LinkedIn offering prospectus? OMG, is this even legal? http://sec.gov/Archives/edgar/data/1271024/000119312511142213/ds1a.htm

Here are top 5 reasons to fear the LinkedIn IPO:

1. No scalable business model. The nebulous “solutions” and “opportunities” in reality translate into spam and My_SpacedIn. “I hear it’s for people without jobs”.
2. Draconian 1:10 voting power dual stock structure…”our founders, and our executive officers, employees and directors and their affiliates, will together hold approximately 99.1% of the voting power”. Also new investors will experience immediate and substantial dilution.
3. Revenue growth rate ALREADY declining.
4. The original investors are already exiting, with 45% of IPO proceeds going to investor cash out.
5. This listed as competitive strength: “Proprietary Technology Platform. Our proprietary software applications and technologies enable us to perform large scale real-time data and computational analyses that support our solutions. We categorize and query large sets of structured and unstructured data to personalize relevant information. For example, one of our key personalized recommendation features typically involves the processing of over 75 terabytes per day, and nearly two billion people searches were performed on our website in 2010.” Are they into people search then? A bit too late I’d say.

It reads like a joke, but everyone is pretending. The new dot-com subprime!

[netzwerg]

08:09 AM on 05/20/2011

I bought for 31.70€ and sold for 80.36€ yesterday. More than 100% in less than 24h!

US Casino rocks!!!

[netzwerg]

08:20 AM on 05/20/2011

Now it's down to 65.66€. ;)

[me again]

07:21 AM on 05/20/2011

This proves the ridiculousness of the current stock market. Linked in could be one of the dullest sites on the web.

[FBuchan]

07:49 AM on 05/20/2011

And yet compared to Facebook and Google, it has an actual business model and fairly sustainable revenue stream -- though it is still not worth even a quarter of what that IPO suggests. I guess Wall Street needs a new way to inflate the economy without returning any real value. Too bad Bubble 2.0 isn't really an available title to attach to this latest false market swing upward.

[jflorish]

08:19 AM on 05/20/2011

I would put Facebook and Google both way ahead of LI, its not even close.

[me again]

12:17 AM on 05/21/2011

Business models for these type of operations are smoke, mirrors and crystal balls. I also would like to examine their revenue stream, which I beleive to be puffed up.