By Lynn Cowan
LinkedIn Corp. raised its price range for an expected initial public offering this week by 30%, a strong indication that demand is running high for its shares, and an increase not seen since the dot-com bubble of a decade ago.
The company, which is set to price its shares on Wednesday night and begin trading on the New York Stock Exchange on Thursday, originally planned to sell 7.84 million shares at between $32 and $35 apiece. In a revised filing Tuesday with the Securities and Exchange Commission, the company set a new price range of between $42 and $45 a share.
While companies sometimes raise their price by as much as $3 to $4 a share, a $10 increase is rare. It's a clear sign that investors are jockeying for shares ahead of the offering and are willing to pay far more than the company was originally asking in order to get a piece of the IPO.
The new terms value the Mt. View, Calif., company at roughly $4 billion, up from about $3 billion. By traditional metrics, LinkedIn's valuation goal is lofty. At its new price range, the company will be valued between $3.97 billion and $4.25 billion; even at the low end of the range, that is nearly 258 times last year's earnings of $15.4 million.
That is higher than the multiple that Facebook Inc.'s private investors were willing to pay in a January private placement, when the firm fetched a valuation estimated at $50 billion. Although Facebook doesn't publicly release earnings, unaudited figures circulated to private investors put its income at $350 million for the first nine months of last year, or 143 times earnings; presumably the company's earnings were even higher for the full year, likely reducing the price-to-earnings multiple.
LinkedIn is one of the best known websites for career networking and recruitment, and its IPO is the first chance that investors will get to participate in a stock offering of a major U.S. social-networking company.
Though analysts generally expect the stock to do well, they have cautioned that LinkedIn isn't exactly in the same league as Facebook, which has more than 600 million users, six times the size of LinkedIn.
In 2010, revenue at LinkedIn doubled to $243 million and income was $15.4 million, compared with a loss of $4 million a year earlier. In the first quarter of 2011, revenue doubled to $94 million and income rose 14% to $2.1 million from a year earlier.
LinkedIn 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: technology, product development, sales and marketing, and international expansions. It also warns that it expects that its results in the future could become more cyclical and seasonal.
The company's revenue comes from selling premium services to subscribers and from selling businesses and professional organizations advertising access to subscribers based on their professional histories and skills.
LinkedIn's top venture investors include Sequoia Capital, which will own 17.8% after the IPO; Greylock Partners, which will own 14.9%; Bessemer Venture Partners, with 4.8%; and Bain Capital Ventures, which is the only one of these firms selling shares in offering, leaving it with 3.9%.
The company's IPO is being managed by Morgan Stanley, Bank of America Merrill Lynch and J.P. Morgan Chase & Co.
The last time something similar happened just before a pricing was at the height of the dot-com market in 2000, when Internet network equipment company ArrowPoint Communications Inc. raised its price range by $15 a share in March of that year, according to data from Dealogic. ArrowPoint ended up pricing even higher than its revised range, then was acquired a few months later by Cisco Systems Inc.
