LinkedIn Share Sale Likely to Be First In Wave of Social-Networking IPOs
LinkedIn Corp.’s plan to raise as much as $175 million in an initial public offering may be the first in a wave of share sales for U.S. social-networking companies.
The largest professional-networking site plans an IPO after turning a profit in the first nine months of last year and more than tripling revenue between 2007 and 2009, it said in a filing yesterday with the U.S. Securities and Exchange Commission.
Other companies that foster online interaction may follow suit. LinkedIn is at the forefront of social-Web startups that aim to replicate the successes of Internet pioneers, such as Google Inc. and Amazon.com Inc., and avoid the fate of sites like Pets.com Inc., which shut less than a year after its IPO.
“LinkedIn is bringing the very hot concept of social networking to the practical business world,” said Dixon Doll, co-founder of venture-capital firm DCM, based in Menlo Park, California. “The whole social-networking phenomenon may be in the fourth or fifth inning and none of these have gotten public yet.”
Social deals site Groupon Inc., which rebuffed a $6 billion takeover approach from Google, is in talks with banks about a public offering this year, while Facebook Inc. may pursue an IPO in 2012, three people familiar with the matter said last year.
For the nine months that ended in September, net income attributable to common shareholders was $1.85 million, LinkedIn said. Revenue was $161.4 million, almost double the $80.8 million a year earlier. Total revenue in 2009 was $120.1 million, and the company had $89.6 million in cash and equivalents as of Sept. 30.
LinkedIn is dwarfed by Palo Alto, California-based Facebook, the most popular social network, which has more than 500 million users. It had revenue of $1.2 billion in the first three quarters of last year, up from $777 million, according to a person who has viewed documents pertaining to its results and asked to remain anonymous because the company is private.
Even with that growth, Facebook isn’t worth the $50 billion valuation it derived from a recent round of financing led by Goldman Sachs Group Inc., according a poll of 1,000 Bloomberg customers who are investors, traders or analysts.
Of investors polled, 69 percent say Facebook is overvalued, the poll showed. Only four percent said it’s worth more.
‘Lot to Like’
LinkedIn could draw strong demand in the public markets because it has steadily boosted sales from advertising, subscriptions and hiring services, said Tom Taulli, an independent technology analyst.
“There’s a lot to like if you’re an investor,” said Taulli, who is based in Los Angeles. LinkedIn is “growing quickly, it has multiple revenue streams and there’s global potential here,” he said.
LinkedIn’s biggest shareholders include co-founder Reid Hoffman and his family and trust, with 21 percent; Sequoia Capital, with 19 percent; Greylock Partners, which holds 16 percent; and Bessemer Venture Partners, with 5.1 percent. LinkedIn Chief Executive Officer Jeff Weiner owns 4.1 percent.
Some of the shares sold to the public will be from existing shareholders and some stock will be issued and sold by Mountain View, California-based LinkedIn, according to a post on the company’s blog. The company didn’t say how many shares would be sold in either case, or at what price.
LinkedIn hired Morgan Stanley, Bank of America Corp. and JPMorgan Chase & Co. to lead the offering, according to the SEC filing. Allen & Co. and the investment banking division of UBS AG are also working on the sale.
Jim Breyer, a managing partner at venture capital firm Accel Partners, said if it was up to him he wouldn’t take LinkedIn public now. There’s “always danger” of a social- networking bubble, he said today in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. Accel was an early investor in Facebook and Groupon.
LinkedIn has more than 1,000 employees and 90 million users in more than 200 countries. Members use the site to search for jobs, recruit employees and find industry experts. While users can create personal profiles for free, LinkedIn introduced paid subscriptions in 2005, giving recruiters more access to job candidates and providing business professionals ways to communicate with one another. The company also makes money by selling ads on the site.
As LinkedIn’s membership has grown, investment firms have been clamoring for a piece of the company.
$3 Billion Valuation
Tiger Global Management LLC, a hedge fund founded by Chase Coleman, paid $20 million for a stake in the company in July, at a valuation of about $2 billion, according to two people familiar with the matter. SharesPost, a private exchange, is now trying to auction LinkedIn shares at a valuation of almost $3 billion, three people familiar with the matter said last week.
Pricing of LinkedIn’s stock in its IPO won’t be affected by trading on speculative markets for private company shares, the company said in its SEC filing.
LinkedIn was founded in 2003 by former PayPal Inc. executive Hoffman, 43, and received its first round of funding that year from Sequoia, the venture firm behind Google Inc. and Yahoo! Inc. Sequoia’s Mike Moritz is on LinkedIn’s board. The company has raised more than $100 million from firms including Greylock, Bessemer and Bain Capital Ventures.
On Jan. 25, in the first venture capital-led U.S. IPO of 2011, Web content company Demand Media Inc. sold 8.9 million shares at $17 each after originally offering 7.5 million shares for $14 to $16 apiece. New York-based Goldman Sachs Group Inc. and Morgan Stanley arranged the IPO.
LinkedIn “is just one of what we view as dozens of high- quality private companies that represent strong venture capital- backed, technology IPO candidates,” said Paul Bard, director of research at Greenwich, Connecticut-based IPO researcher Renaissance Capital LLC. “You’re going to see momentum continue, and we could end up with some pretty big numbers in terms of IPOs in 2011.”
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