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Tourists mix with workers in front of the New York Stock Exchange. The stock market’s volatility has raised Wall Street’s profile among many tourists in the city this summer.
Credit: Benjamin Norman for The New York Times
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Zef Nikolla/NasdaqSpencer Rascoff, center, the chief of Zillow, and his colleagues celebrated its initial public offering at the Nasdaq.
8:46 p.m. | Updated
Once again, investors have caught Internet fever.
Shares of Zillow, the online real estate information company, gained nearly 79 percent in its debut on the Nasdaq stock market on Wednesday, closing at $35.77. The company, which set its initial public offering price at $20, soared as high as $60 when trading began.
The first-day gains in Zillow echoed those of the social network LinkedIn, which more than doubled from its offering price in May, and Yandex, known as the Google of Russia, which jumped 55 percent a few days later.
Investors are awaiting initial public offerings from Groupon, the social buying site; Zynga, the creator of the online game FarmVille; and ultimately Facebook.
Investors’ enthusiasm for Internet stocks this year has raised questions about whether this boom could be repeat of the 1990s technology bubble, setting investors up for a fall. In one instance, Renren, a Chinese social networking site, jumped as much as 71 percent on its first day on the New York Stock Exchange in May, but its shares are now trading well below their offering price.
And in a sign of nervousness, JPMorgan Chase, one of the underwriters of LinkedIn’s initial public offering, downgraded its rating on the company’s shares on Monday, calling them overvalued. Despite a retreat after the downgrade, LinkedIn still trades at more than twice its offering price of $45.
Investors have not been totally indiscriminate in their quest for Internet stocks. In June, for instance, shares of Pandora Media, a popular but unprofitable online music service, gained only 8.9 percent in their debut and later fell below their offering price before recovering.
Zillow did receive special treatment in its market debut, as it entered the rarefied club of publicly traded corporations with single-letter ticker symbols.
Zillow, which trades as Z, is the first single-letter stock to trade on the Nasdaq stock market. It joins such blue-chip corporations as the Ford Motor Company (F), Visa (V), and Citigroup (C), all of which trade on the New York Stock Exchange.
Before Zillow, the last company to trade under the letter Z was the now-defunct Woolworth’s department store chain.
Bob McCooey, Nasdaq’s head of listings, said on Wednesday that getting Zillow a single-letter ticker symbol required lobbying the New York Stock Exchange, which had put it on a so-called perpetual list of symbols it had reserved for future listings.
“For Zillow, it’s really about their branding,” Mr. McCooey said. “They felt like this was going to make them unique.”
Other companies seeking one-letter ticker symbols should hurry: I, J, Q, U and W are still available, though all five are on the New York Stock Exchange’s reserved list.
“They don’t share very much with us,” Mr. McCooey said.
Like other Internet companies, Zillow had outsize expectations about its initial public offering. Originally, the company set its price range at $12 to $14 a share, later increasing it to $16 to $18 before finally setting it at $20. The company raised more than $69.2 million from the offering, valuing it at as much as $550 million. With Wednesday’s 78.9 percent increase, Zillow has a market value of nearly $1 billion.
But as with peers, Zillow is still struggling to be profitable. The company reported a loss of $6.8 million in 2010, according to its recent regulatory filing. Still, the company is growing. Zillow’s revenue increased 74 percent, to $30.5 million. This year, Zillow entered into a partnership with Yahoo Real Estate and acquired Postlets, a real estate listing service.
Citigroup was the underwriter on Zillow’s initial public offering.
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Henny Ray Abrams/Associated PressThe floor of the New York Stock Exchange.
8:48 a.m. | Updated
With NYSE Euronext shareholders approving the merger with Deutsche Börse, the fate of the exchange merger lies across the Atlantic.
On Thursday, more than 65 percent of NYSE Euronext shareholders voted in favor of the deal, according to people briefed on the matter.
The odds of a deal increased sharply in May once the Nasdaq OMX Group and the IntercontinentalExchange withdrew their rival offer for the New York Stock Exchange operator.
Last month, both companies also agreed to pay out a special dividend to shareholders to help sweeten the proposal. Several proxy advisory firms, including Institutional Shareholder Services, recommended that shareholders back the merger.
Still, the deal is not done.
Deutsche Börse’s shareholders have about a week to tender their shares in support of the merger. The German exchange operator must win the support of 75 percent of shareholders by July 13. Thus far, about 11.11 percent of investors have tendered their shares, according to regulatory documents filed by Deutsche Börse.
People involved in the process say that even that is not too much of a problem, given that many investors are likely to tender their shares in the last few days before the deadline. Some shareholders might also have been waiting for the results of NYSE Euronext’s vote before lending their support.
Deutsche Börse can also ask for a deadline extension of up to two weeks, if necessary.
Spokesmen for NYSE Euronext and Deutsche Börse declined to comment.
In addition to the shareholder votes, another consideration for the deal is government approval. While American antitrust regulators seem likely to approve the merger, deal makers have said that persuading their European counterparts may be more difficult. Still, Deutsche Börse officials have said that they have made “significant progress” in working with regulators.
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In a sizzling debut last week on the New York Stock Exchange, investors sent stock in LinkedIn, the social-networking site for business professionals, soaring 109 percent on its first day of trading. While the enthusiasm subsided a tad the next day, LinkedIn’s shares still closed the week at around $93, more than twice the company’s initial offering price. This put the value of the company, which made $15 million in profit last year, at more than $8 billion.
From Wall Street to Silicon Valley, the debate was whether this stunning performance echoed the late 1990s, when the bubble around dot-com companies began to inflate. On its first day of trading in 1995, Netscape stock doubled in price. Yahoo shares rose 154 percent on its 1996 offering. TheGlobe.com shot up to $97 from $9 in its first day of trading in 1998, giving it a valuation of about $850 million.
LinkedIn’s first-day trading gain was the fifth highest since 2001, but the top three were Chinese Internet stocks like Baidu, which zoomed 354 percent on its debut in 2005, with Nymex No. 4.
“In both cases, the Internet bubble of the late 1990s and now, investors are assigning some very optimistic valuations,” said Jay Ritter, a professor of finance at the University of Florida.
Still, many people are hesitant to proclaim that the markets are on the cusp of another tech bubble or that the markets are returning to the days when unprofitable new companies could be valued at billions of dollars. In those days, companies without earnings were assessed with measurements like “eyeballs,” the number of people who visited a site; “stickiness,” how long they visited; and even “mindshare,” how aware the public was of the company or category.
“LinkedIn is not a company you have to value on page views. We’re not talking about a start-up here,” said Matt Therian, a research analyst at Renaissance Capital, based in Greenwich, Conn. “This is a company that grew revenues by 110 percent in the first quarter and, on top of that, it’s actually turned a profit.”
By far, the hottest segment of the Internet market is social media companies. The social buying site Groupon, which raised $1 billion from investors in January, is said to be considering an offering that could value the company at $20 billion.
And the barometer for the segment, Facebook, which is widely expected to go public next year, has rocketed higher in the private secondary markets with its shares trading at an implied valuation of as much as $80 billion in recent months.
As the first social media company out of the gates into the public markets, LinkedIn benefited from all of the attention Facebook has ginned up.
“Do you really imagine that LinkedIn could have gotten this valuation if not for the excitement of Facebook?” asked Kevin Landis, the chief investment officer of Firsthand Funds, which rode the tech boom and bust a decade ago. “I don’t know anybody who could make that case.”
LinkedIn’s valuation, many analysts say, is partly a function of investor demand for all things social media but also related to the fact that a limited number of shares — nine million — were issued. Those shares traded 30 million times in the first day.
Initial public offerings remain rare now, and this scarcity can drive up prices. Only 154 companies went public in 2010, and 63 have so far this year, compared with 486 in 1999.
Of course, the big question is whether LinkedIn is destined to become the next Google or Amazon, or whether it is another TheGlobe.com, which was a penny stock by 2001, when the dot-com bubble burst.
At LinkedIn’s current valuation, investors are clearly betting the company will show phenomenal growth, analysts say. LinkedIn is trading at about 554 times last year’s earnings of $15 million (the company posted losses in 2008 and 2009).
That compares with a price-to-trailing-earnings ratio of 149 when Google made its debut in the markets or, in a more extreme example, the 947.5 ratio eBay received in its first day of trading, according to data from Mr. Ritter.
Price-to-earnings comparisons for other hot Internet companies, like TheGlobe.com or even Netscape on their opening days, are difficult as they did not have any earnings.
By another closely watched measurement, LinkedIn is trading at around 25 times this year’s expected sales, said Rick Summer, a senior equity analyst at the Chicago research firm Morningstar.
That’s high, and Mr. Summer says LinkedIn could increase its revenue to $1.5 billion in five years, from $243 million last year. That makes LinkedIn worth about $27 a share, by his estimate.
With LinkedIn shares trading at $93, investors are betting the company’s revenue will rise to $4 billion in five years, Mr. Summer said.
Impossible? No. Difficult? Yes, say analysts.
But that valuation makes sense if an investor believes someone would pay even more for the stock. And that’s how bubbles form.
LinkedIn, which has about 100 million members, does have a revenue model. It offers what is called a freemium business model: users can create free profiles or they can pay a subscription fee for a premium account with special features.
LinkedIn also charges businesses and recruiters for hiring. Although the company is still growing quickly, it faces tough competition from other sites, like the job listing services Monster and CareerBuilder.
The company has repeatedly said it plans to invest in its platform, at the expense of short-term profit, a move that is potentially good for the company over the years, but could make it tough for investors to justify current market valuations, analysts warn.
Mr. Summer said, “We think it’s a very good financial model and a good business, but at these valuations, it’s potentially, ‘Watch out below.’ ”
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8:36 p.m. | Updated
The professional social network LinkedIn priced its public offering at $45 a share late Wednesday, at the top of its expected price range.
At that price, LinkedIn will raise $352.8 million, valuing the company at $4.3 billion. It is set to offer 7.8 million shares, with shareholders selling about three million shares.
The underwriters have the option to sell an additional 1.1 million shares, which would increase the total amount raised to $405 million.
LinkedIn, which is set to go public Thursday morning on the New York Stock Exchange, is one of the most eagerly awaited initial public offerings in years.
While many Internet companies plan to go public in the next 12 months, LinkedIn is the first social media company to do so this year in the United States.
At $352.8 million, Linkedin’s offering will be the fifth largest for the Internet software and services sector in the United States, according to data from Capital IQ and Standard Poor’s. Google’s offering in 2004 still stands as the largest, at $1.67 billion.
LinkedIn’s valuation has surged in the last month, amid rising investor demand for social media companies.
Early this month, the company set its price range at $32 to $35 a share, at a roughly $3 billion valuation. Private shares of LinkedIn, meanwhile, traded at an implied valuation of $2.5 billion on SharesPost, a secondary market.
On Tuesday, buoyed by growing investor interest in the offering, the company raised its projected range sharply, to $42 to $45 a share.
“LinkedIn is definitely a beneficiary of the social networking trends,” said Aaron Kessler, an analyst at ThinkEquity. “The valuation implies a lot of excitement. It’s one of the first ways to get into social in a public forum.”
Still, analysts have raised concerns that LinkedIn’s valuation is running ahead of its fundamentals. The company recorded revenue of $243.1 million in 2010, with net income of $15.4 million. It also warned investors, in its recent filing, that it expected its revenue growth to slow as costs increased. It said it did not expect to be profitable in 2011.
The site, which reports about 100 million members, derives most of its revenue from advertisers and recruiters who pay for hiring solutions. Based on its current growth trajectory, LinkedIn is selling for roughly 46 times 2011’s projected earnings, according to Abelardo Mendez, an analyst for GreenCrest Capital. “It’s very rich. This is a challenge for investors. LinkedIn’s revenues doubled last year, but will they double again in 2011?” Mr. Mendez said.
LinkedIn will trade under the symbol LNKD. Morgan Stanley, Bank of America Merrill Lynch and JPMorgan Chase are running the offering.
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David Paul Morris/Bloomberg NewsReid Hoffman, LinkedIn’s chairman, whose stake could be worth nearly $853 million when the company goes public.
7:03 p.m. | Updated
A few months ago, LinkedIn’s market debut looked to be relatively modest. Its value on a secondary exchange had stagnated at roughly $2.5 billion.
But LinkedIn — the professional social network that is expected to begin trading this week on the New York Stock Exchange — is defying expectations. On Tuesday, the company said in a regulatory filing that it could raise as much as than $405 million. The offering, which is priced at $42 to $45 a share, values the site at $4.3 billion.
That is a significant improvement in a short time, an increase of more than 30 percent from previous expectations. In early May, the company originally set its range at $32 to $35 a share, or roughly $3 billion. Private shares of the social network recently traded at an implied valuation of $2.5 billion on SharesPost, a secondary market.
“It’s a big surprise,” said Rory Maher, an analyst with Hudson Square Research. “Thirty percent indicates that people are dying to get into this.”
The networking site, which has more than 100 million members in more than 200 counties, said it planned to sell more than 7.84 million shares. The underwriters of the offering have the option to sell an additional 1.176 million shares, depending on investor appetite.
An initial offering allows entrepreneurs and institutional investors a chance to cash out. LinkedIn’s chairman, Reid Hoffman, and its chief executive, Jeffrey Weiner, are both selling a small number of shares and will net an estimated $5.2 million each, assuming the shares price at $45. At that price, his entire stake is worth $852.8 million. Goldman Sachs is expected to be the largest seller, offering the firm’s entire stake of 871,840 shares.
LinkedIn’s improving fortunes signal the swelling demand for the Web’s most promising social media start-ups. Both Groupon and Facebook are expected to go public within the next 12 months. Groupon is said to be talking to bankers about a valuation north of $20 billion. Facebook’s last major financing round, a $1.5 billion investment led by Goldman Sachs, valued the company at $50 billion.
Although a lot of the exuberance around Facebook and Groupon has been widely discussed, a strong showing for LinkedIn on its market debut on Thursday would be a positive harbinger for Internet I.P.O.’s. According to a recent report by SecondMarket, an exchange for private shares, investors expressed the most interest in Facebook, followed by Twitter, Groupon and LinkedIn.
“It’s a good litmus test,” Mr. Maher said. “This is a confirmation that investor demand is really strong. A combination of heavy demand and the lack of supply is really driving this.”
Of the social media giants, Groupon is expected to be next on deck. The group buying site is preparing to file a prospectus within the next two weeks, according to two people close to the company who were not authorized to speak because details of the offering were private.
It remains to be seen how well the shares of Internet start-ups will perform in the public markets. The Chinese social networking site Renren priced its offering on the New York Stock Exchange at $14. While its shares closed at $18 on the first day of trading on May 4, the stock closed Tuesday at $12.73.
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Jin Lee/Bloomberg NewsThe New York Stock Exchange.
The New York Stock Exchange, that bastion and soundstage of capitalism, has always held itself up as a model of good corporate governance. It has strict governance rules for companies whose shares trade on its exchange.
Even through years of weathering Enron and other corporate scandals, not to mention the outcry over the pay package for its own former chief executive, Richard A. Grasso, the exchange has marketed a Big Board listing as a Good Housekeeping Seal of Approval.
So it has been somewhat surprising to watch the board of the exchange’s parent company as it defends its planned merger with Deutsche Börse and fights off a rival bid from the Nasdaq OMX Group and IntercontinentalExchange, or ICE.
Without so much as having a brief meeting or discussion with Nasdaq and ICE on their bid — which offered over 13 percent more than Deutsche Börse’s bid — the board of NYSE Euronext declared the offer “clearly not in the best interests of our shareholders.”
How could the board determine that without even having a conversation?
Rob Rutschow, an analyst at the Hong Kong-based CLSA brokerage firm, put it best: “It is hard to ignore a much higher value per share offered by Nasdaq and ICE, but NYSE’s management found a way to do it.”
Then, in the face of a proposal for shareholders to hold an extraordinary meeting to compel the NYSE Euronext board to consider the rival bid — a right that the shareholders don’t have without the consent of the board — the directors turned them down.
Corporate governance experts are dismayed. John Biggs, a director of Boeing and the former chief of TIAA-CREF who now teaches corporate governance at New York University, says that given the Big Board’s role as a model for others, it is indefensible for the company not to engage in merger talks.
“Why is the NYSE taking this position and being unwilling to talk? On the face of it, ‘best practice’ would be to have a meeting,” he said. “There may be reasons not to talk — but I haven’t heard them.”
In truth, the NYSE has articulated a series of reasons it prefers its deal with Deutsche Börse, all of which seem somewhat reasonable. Its biggest reason is that a deal with Nasdaq and ICE, it says, faces enormous regulatory challenges and is complicated by the fact that NYSE would be split up by the buyers, which is, of course, accurate.
But that doesn’t mean that the board of NYSE shouldn’t be meeting with potential buyers in hopes of squeezing an even better offer from them. And it seems even stranger to see the board prevent its own shareholders from considering the offer, given its propensity toward pushing companies on the exchange to be more open.
Here’s the NYSE, in its own words, when it comes to listed companies: “Good business practice is frequently the controlling factor in the determination of management to submit a matter to shareholders for approval even though neither the law nor the company’s charter makes such approvals necessary. The exchange encourages this growth in corporate democracy.”
And yet, when it comes to its own shareholder democracy, well, the NYSE is not as quick to take its own advice.
The NYSE’s reason for not having a special meeting? “A 10 percent standard for calling special meetings as favored by the proponent would present a real risk of significant cost, management distraction and diversion of management and financial resources to address a possibly unlimited number of special meetings.”
Really? That’s the rationale? It’s not as if the company is being bid on every day.
Institutional Shareholder Services, the proxy advisory service, wrote: “The inability to call a special meeting and the resulting insulation of management could adversely affect corporate performance and shareholder returns.”
In fairness, people close to the NYSE say the bid by Nasdaq is so inadequate — the price is too low and the antitrust challenges so high with little in the way of protection for its shareholders should a deal fail to get done — that it would be a disservice to NYSE shareholder’s to engage in any form of talks. If the bid were higher or included some greater sense of certainty, it would at least be worth the conversation.
And some have cynically suggested that Nasdaq and ICE are not really interested in a deal with the NYSE. The bid, they say, is just an effort to force Deutsche Börse to pay more or an opportunity for Nasdaq to get a peek at its biggest rival’s confidential numbers. Invoking an old Wall Street saw, one executive working for NYSE described Nasdaq’s bid as “a chance to see the centerfold without having to pay for the magazine.”
All that may be true — and the offer from Deutche Börse may ultimately be the better deal — but for a company that is supposed to be the example to every other, the right “process” may be as important as the outcome.
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My high school guidance counselor steered me toward engineering because I excelled at math and science. Engineering grads were getting six to eight offers each, but by the time I graduated from Georgia Tech in 1983, job prospects had slowed. I turned down a job with a construction company after I got an offer from General Dynamics to work in Atlanta for its electric boat division. I worked on noise mitigation for submarines.
I found I was more interested in management than pure engineering, so after two years I left to attend the Wharton School at the University of Pennsylvania for an M.B.A. Management courses, however, didn’t captivate me. I was most comfortable in finance, with its mathematical answers that weren’t open to case-study debate.
I started on Wall Street in August 1987. Black Monday occurred two months later, and large financial firms started laying people off. I learned that business is cyclical and that out of crisis comes opportunity. Over the next 10 years, I worked for several companies, including James J. Lowrey Company, a financial advisory firm.
In 1996, Napoleon Brandford III and I were working together when Muriel Siebert, who owns a discount brokerage firm and was the first woman to buy a seat on the New York Stock Exchange, approached us about starting a municipal finance firm together. Muriel and Napoleon asked me to be president and C.E.O. It has turned out to be a perfect role for me, working in tandem with Napoleon, the chairman.
Our company underwrites municipal bonds that cities issue to finance major infrastructure projects. Our industry has had a few great years despite the financial crisis of 2008. While some large firms downsized, we increased our staff by a third. In the first two months of this year, however, industry volume was less than half of what it was a year ago.
Last year, we were among the top 10 municipal finance firms in revenue, a first for a minority- and woman-owned company. Increasing our staff in 2008 helped fuel our growth.
Municipalities are struggling today as they deal with fiscal crises. But they’re engaging in layoffs and cutting services in an attempt to balance their budgets. I believe that reports of possible enormous defaults are overstated. The municipal sector has been known for its safe investments. Lower-rated credit, in the nonrated or junk-bond range, and credit barely investment grade, are vulnerable; that’s why these investments pay a higher yield.
In 2000, when working in Detroit for our company, I was co-founder of an internship program, the Detroit Summer Finance Institute, which exposes inner-city students to finance jobs. People often view the municipal finance sector as less glamorous than the corporate one. Young people, especially, don’t always realize how rewarding work in this field can be. We have offices in 22 cities. I see the impact of our work in many cities — from convention centers to highways to educational projects.
At a recent event, a couple of people who learned I was in finance wanted to sit next to me for personal investment advice. The fiscal crisis facing some municipalities had them worried about their portfolios. I’ve never been so in demand for investment advice.
As told to Patricia R. Olsen.
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