LinkedIn Corp. held most of its gains after more than doubling yesterday in its debut, leaving investors in the first initial public offering of a major U.S. social-media site with a 107 percent gain.
The shares climbed as much as 14 percent before a late retreat left them down 1.2 percent for the day at $93.09 on the on the New York Stock Exchange. The stock, traded under the ticker LNKD, surged 109 percent to $94.25 yesterday. after surging 109 percent yesterday. The ticker is LNKD.
Based on today’s closing price, LinkedIn’s market value is $8.8 billion, or about 23 times 2011 revenue, assuming first- quarter sales are matched the rest of the year. Facebook Inc., the world’s largest social network, would be valued at about $94 billion using the same multiple. The gains bode well for Internet companies that have put off going public while honing efforts to make money, and they may brighten prospects for the venture capital industry, which lost money amid an IPO drought.
“We knew this was going to be a super hot IPO and gives us further evidence of the enormous appetite for this wave of next- generation Internet companies,” Paul Bard, director of research at Renaissance Capital LLC, said in an interview with Bloomberg Television. “You are going to see more companies go public that will try to capitalize on this wave of interest.”
LinkedIn’s debut reflects comeback potential for IPOs for startups funded by venture capitalists. U.S. venture-backed companies raised $1.38 billion in IPOs in the first quarter, a 47 percent increase from a year earlier, according to the National Venture Capital Association. In the first quarter of 2009 there were no venture-backed IPOs.
There’s mounting concern that some technology shares may be overvalued as investors shake off their apprehension from the 2007-2009 collapse of the credit markets, former U.S. Treasury Secretary Lawrence Summers said at a conference today in Shanghai.
“Who could have imagined that the concern with respect to any American financial asset, just two years after the crisis, would be a bubble?” Summers, now a professor at Harvard University, said at a conference today in Shanghai. “Yet that concern is increasingly raised with respect to American technology, with respect to certain other American assets.”
LinkedIn may not be able to sustain the market value gained yesterday, said Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management LLC, which oversees $3.8 billion and bought LinkedIn in the IPO.
“At $100 a share, we would not be buyers,” Veru said. “It far exceeded our expectations for what it would do in the first day of trading. It would be amazing to me, with the revenue base it has, if it maintains a $10 billion market cap.”
LinkedIn’s performance yesterday 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.
More recently, Google Inc. rose 18 percent in its 2004 IPO, and VMware Inc. (VMW) surged 76 percent when it started trading in 2007.
“The valuation for LinkedIn is rich,” said Michael Moe, chief investment officer of GSV Capital Management in Woodside, California, in a televised interview with “Bloomberg West.” “To earn the valuation, it has to continue to grow very, very fast.”
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 after raising $175.6 million in its offering.
LinkedIn’s backers, which have made more than $100 million in investments in Mountain View, California-based LinkedIn since 2003, stand to gain. Sequoia Capital has amassed a holding now worth $1.59 billion, and Greylock Partners has a $1.32 billion stake, based on yesterday’s close. Reid Hoffman, LinkedIn’s founder and chairman and its biggest shareholder, holds $1.8 billion and Bessemer Venture Partners has a stake worth $431.5 million.
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.
While LinkedIn is often compared to 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.com Inc., NetSuite Inc. (N) and SuccessFactors Inc. (SFSF), 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.
LinkedIn sold 7.84 million shares at $45 each this week. 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. (JPM) 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. (GS) 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.