LinkedIn Corp., the largest professional-networking website, more than doubled in the first day of trading after its initial public offering.
The stock surged as much as $77.70 to $122.70 and traded at $108.70 at 12:25 p.m. on the New York Stock Exchange under the symbol LNKD. LinkedIn sold 7.84 million shares at $45 each, the Mountain View, California company said in a statement yesterday.
At $100 a share, LinkedIn is worth about $9.45 billion, or 25 times 2011 revenue, assuming first-quarter sales are matched over the next three quarters. Facebook, the world’s largest social-networking site, would be valued at about $100 billion using the same multiple.
LinkedIn’s performance is reminiscent of some of hottest stocks in the dot-com boom. Yahoo! Inc. rose 154 percent on its first trading day in 1996, a year after Netscape Communications Corp. more than doubled in its debut.
“There’s tremendous investor appetite for shares of social media companies, particularly the premier ones like LinkedIn,” said Lou Kerner, managing director of the private shares group at Wedbush Securities Inc., in New York. “I wouldn’t have been surprised to see it open in the $60 to $65 range, but it’s obviously opened up significantly higher than that.”
LinkedIn’s gains bode well for other social-networking comanies, including Facebook, that are expected to sell shares. They also brighten prospects for the venture capital industry, which lost money over the past 10 years amid a dearth of IPOs.
Members of LinkedIn use the site to search for jobs, recruit employees and find industry experts. While users can create personal profiles for free, paid subscriptions were introduced in 2005, giving recruiters more access to candidates and providing professionals ways to communicate with one another. The company gets 70 percent of revenue from business subscriptions, a model that’s similar to Salesforce.com.
Qihoo 360 Technology Co., the Beijing-based provider of computer anti-virus products and Web browsers, had the biggest first-day gain among U.S. IPOs this year, surging 134 percent the day after raising $175.6 million in its offering.
In two of more anticipated Internet debuts of recent years, Google Inc. rose 18 percent in its 2004 IPO, and VMWare Inc. surged 76 percent when it started trading in 2007. EBay Inc. surged 163 percent in its 1998 IPO.
“The valuation for LinkedIn is rich,” said Michael Moe, chief investment officer of GSV Capital Management in Woodside, California, in a televised interview yesterday with Bloomberg West. “To earn the valuation, it has to continue to grow very, very fast.”
While LinkedIn is often compared with social networks such as Facebook and Twitter Inc., which depend on advertising to consumers, the company said in its prospectus that a “substantial portion” of revenue comes from a business that’s comparable to the software-as-a-service model. That’s where companies deliver software over the Internet, a market expected to climb 16 percent this year to $10.7 billion, according to Gartner Inc., a research firm in Stamford, Connecticut.
SaaS companies, including Salesforce, NetSuite Inc. and SuccessFactors Inc., sell subscriptions over the Internet rather than long-term licenses like traditional business-software companies.
LinkedIn’s hiring solutions business, targeted at recruiters, accounted for about half of LinkedIn’s $93.9 million in first-quarter revenue, with 30 percent coming from ads. LinkedIn’s net income rose 14 percent to $2.08 million in the first quarter as sales more than doubled.
Price Range Raised
The company raised the proposed price range for its initial offering on May 17, to $42 to $45 a share from $32 to $35. The sale raised $352.8 million.
Proceeds from the offering will be used to fund existing operations and expand the business, including possibly buying other companies or technologies, LinkedIn said in a filing with the U.S. Securities and Exchange Commission. Including an overallotment option for underwriters to buy an additional 1.18 million shares, LinkedIn may raise as much as $405.7 million.
Morgan Stanley, Bank of America Corp. and JPMorgan Chase & Co. led the offering.
About 62 percent of the shares in the offering were being sold by LinkedIn, according to the prospectus. Other sellers include a venture capital affiliate of Bain Capital LLC, McGraw- Hill Cos., Goldman Sachs Group Inc. and founder and Chairman Reid Hoffman.
Venture capital backers Sequoia Capital, Greylock Partners and Bessemer Venture Partners aren’t selling shares, according to the filing.
© Copyright 2017 Bloomberg News. All rights reserved.