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.
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.