12:04 p.m. | Updated
Shares of LinkedIn, a professional social network, soared on their market debut on Thursday, feeding a growing investor mania for the latest generation of Internet companies.
The shares opened at $83 and rose as high as $122.70 in late morning trading — well more than double its offering price — on the New York Stock Exchange.
“It’s an exciting day,” Jeff Weiner, LinkedIn’s chief executive said in a phone interview on Thursday morning. “We were able to find investors who understood our story and understood our desire to invest in our platform.”
At more than $80 a share, the company’s valuation is roughly $8 billion, an astonishing figure for a company that was recently valued at about $2.5 billion in the secondary markets.
It is the biggest Internet I.P.O. since Google’s in 2004, and it is a positive sign for the other Internet companies hoping to go public in the next 12 months.
Although LinkedIn is the largest professional online network, the site attracted relatively modest attention before its offering, compared with its high-flying peers, Facebook and Groupon. Facebook, which is widely expected to go public next year, has soared on the secondary markets, with shares trading at an implied valuation as high as $80 billion in recent months.
The valuation of LinkedIn — the first of the big American social media companies to go public — has been surging. In the first week of May, LinkedIn set the target range for its offering at $32 to $35 a share, which valued the company at about $3 billion. Then the company raised the bar 30 percent on Tuesday, to a range of $42 to $45 a share.
Late on Wednesday, the company priced its I.P.O. at $45 a share, at the top end of its forecast. LinkedIn has raised $352.8 million in its offering, but it may raise up to $405 million, if its underwriters decide to sell an additional 1.1 million shares.
As investor enthusiasm soars, analysts are wondering if the valuations for stocks like LinkedIn are grounded in reality.
“Eyebrows are raised around this valuation,” Benjamin Schachter, an analyst with Macquarie Capital, said. “People are trying to figure out how do we value the companies that are coming online?”
According to data from the financial research firm Trefis, the underlying fundamentals do not justify LinkedIn’s rocketing valuation. Based on their analysis of its primary revenue streams — recruiting services, display advertising and subscriptions — the site is worth about $3.2 billion.
“It will be interesting to see how it trades over the next month,” said Cem Ozkaynak, a co-founder of Trefis. “Even though its a professional network, a lot of its business is dependent on growing the number of business clients.”
According to the Trefis report, LinkedIn’s current revenue growth rate will have to pick up substantially in the next five years to justify a valuation north of $4 billion. LinkedIn, which has about 100 million members, has struggled to increase user engagement on its site, an important metric for attracting and retaining recruiters. It is also facing competitive pressure from established job-listing sites like Monster and Careerbuilder, Mr. Ozkaynak said.
“LinkedIn will have to maintain the significant fees it charges to corporate and business customers, while growing its corporate and business customer base significantly from a few thousand customers today to tens of thousands over the next few years,” he wrote in the report.
The site made $243.1 million in 2010, with net income of $15.4 million.
Bank of America Merrill Lynch, JPMorgan Chase and Morgan Stanley led the underwriting of the LinkedIn offering.
Article source: http://dealbook.nytimes.com/2011/05/19/linkedin-soars-in-i-p-o/?partner=rss&emc=rss
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