Is LinkedIn Way Over-Priced Already?

At its IPO last week, the social-media entry promised to hook up professionals, employers and advertisers on a massive scale. That's easier said than done.

Barron's
By Andrew Bary

Call it Bubble 2.0.

The wild reception for LinkedIn's initial public offering last week evoked the dot-com bubble of the late 1990s, when dozens of dubious Internet companies surged following their IPOs, often attaining multibillion-dollar market values, only to crash when they ran out of money or couldn't meet Wall Street's expectations.

By contrast, LinkedIn (ticker: LNKD) is a real business, with more than 100 million members in a kind of Facebook network for professionals. But it looks overvalued, after a jump from $45 at its IPO Wednesday to 93 at Friday's close.

The company now has a market value of $8.7 billion, based on 94 million shares outstanding—and that doesn't include another 30 million that may be issued to satisfy options and executive stock grants. The market value is equal to 35 times 2010 revenue of $243 million and almost 550 times 2010 profit of 17 cents a share. Google (GOOG) is valued at five times revenue and 20 times trailing earnings.

LinkedIn's revenue is growing sharply, with sales hitting $94 million in the first quarter, more than double the year-earlier total. It made just two cents in the first quarter and doesn't expect to be profitable this year, as it "invests for future growth."

LinkedIn appears to have a sustainable business model geared toward selling access to its member data to potential employers and advertisers, but its valuation looks steep, at more than 20 times possible 2011 revenues of $400 million.

The stock could easily be cut in half if the company stumbles. Less than a month ago, it was trading in the 30s in private markets, and in April employees got a wad of options at $22.59, then deemed to be the fair value. One factor driving the subsequent run-up: the thin IPO float of just 7.8 million shares.

LinkedIn defies conventional analysis because of minimal profits. It's essentially a bet that the company ultimately can supplant online job sites like Monster.com, and get advertisers to pay a lot to target its huge membership.

The deal creates another Internet billionaire in chairman Reid Hoffman. His 20% stake is worth $1.8 billion. The average price paid by existing holders, including many employees, is just $1 per share. Also to benefit, indirectly, from LinkedIn's dazzling debut, are the looming IPOs of Twitter, Groupon and Facebook.

LINKEDIN HAS GRAND, OR GRANDIOSE, ambitions. Its prospectus says, "Our vision is to create economic opportunity for every professional in the world," and that "we believe we are transforming the way people work by connecting talent with opportunity at massive scale." Members post profiles on the site, detailing as much professional and personal information as they care to disclose, which is available to other LinkedIn members as well as potential employers.

One key issue is whether LinkedIn is approaching saturation of its market. The company's 101 million members are roughly split 45/55 in the U.S. and outside the country. It boasts that it has been adding a million members every 10 days. Just looking at the U.S., there are 180 million adults between 21 and 65, including the unemployed and those out of the job market. This suggests that the firm, with its 45 million U.S. members, may be reaching most of the nation's professionals already.

Expenses could rise because the cost of attracting talent in Silicon Valley, where LinkedIn is based, has soared as companies compete for top engineers and programmers. LinkedIn now is at a disadvantage because start-ups can offer cheap, pre-IPO stock to new hires, while LinkedIn has to grant stock or options at current prices.

Monster Worldwide (MWW), which operates the leading online jobs site, has a market value of $1.9 billion, just 20% of LinkedIn—and Monster has $1 billion of annual revenue. It was a hot stock as recently as 2007, when it looked like a category killer, destroying the classified ad business. But at 15, Monster's shares are at a fraction of their '07 peak. Such a fate could befall LinkedIn, too.

So far, Facebook and other social networking sites haven't targeted professionals, but they could. And while LinkedIn has significant growth opportunities abroad, its international revenue is still just 27% of total sales.

A handful of the dot.com moonshots—like Amazon.com (AMZN) and eBay (EBAY)—have justified their initial hype. But most highfliers flame out, and the odds are long that LinkedIn can justify its huge market value. Investors probably should stay away.

LinkedIn Doubles It's Price In IPO Debut

New York Times
By Evelyn M. Rusli
Published: May 19, 2011

Shares of the professional social network more than doubled their offering price -- heightening expectations for Facebook, Groupon and other Internet companies weighing initial offerings.

Although The New York Times is charging for some of their content, readers coming through links from search engines, blogs and LinkedIn will be able to read any article without restriction.
Click here to read the entire article at www.nytimes.com:
LinkeIn Doubles It's Price In IPO Debut

LinkedIn Raises Initial Public Offering Price To $42-$45 Per Share

Wall Street Journal
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.