In reminder of '90s, LinkedIn has big first day

May 20, 2011 By MICHAEL LIEDTKE , AP Technology Writer
Reid Hoffman, left, the founder of LinkedIn, and Jeff Weiner, the company's CEO, celebrate the listing of LinkedIn, Thursday, May 19, 2011, on the New York Stock Exchange. LinkedIn, based in Mountain View, Calif., is an internet-based social networking rolodex for business people. (AP Photo/Mark Lennihan)

(AP) -- There was an unmistakable echo of the dot-com boom Thursday on Wall Street. LinkedIn, a trailblazer in the online networking craze, went public with a roaring stock offering. Within minutes, shares were trading at twice the value set by the company.

Buyers crowded the floor of the , and financial news networks flashed LinkedIn's urgently all day. By the closing bell, the company had a market value of $9 billion, the highest for any since had its seven years ago. Millionaires and even one billionaire were made, at least on paper.

The stock, issued at $45, went as high as $122.70 just before noon and closed at $94.25 on a trading volume of 30 million shares. All this for a company that skeptics say amounts to an online Rolodex, a place on the Internet for professionals to post resumes and connect with one another and potential employers.

It was enough to remind some people on Wall Street of the heady late 1990s and the debuts of companies like Netscape Communications - and, more infamously, long-forgotten names like Pets.com and Webvan. Investors wondered whether will be a precursor to another financial frenzy in Silicon Valley.

"I definitely think this will be a catalyst," said longtime technology investor and analyst Michael Moe, CEO of Global Silicon Valley Asset Management. "Investors who like growth stocks have been stuck in a desert for a long time, and now it's like they have found this great pitcher of water."

LinkedIn is already worth $9 billion, or 18 times its projected revenue this year. Major Internet companies, including Google, trade at an average of about five times projected revenue, according to an analysis by Capital IQ.

Using another measure, price-to-earnings ratio, which compares a company's market value with its profit, LinkedIn finished the day at a staggering 554 - a number reminiscent of the late 1990s tech bubble. By comparison, the average P/E ratio of technology companies in the Standard & Poor's 500 index like Google and Apple is 15.

Two-thirds of LinkedIn's revenue comes from the fees it charges to help companies find and hire workers. Francis Gaskins, president of IPOdesktop.com, said that makes the company more like Monster, an employment firm where business depends a lot on the health of the job market.

"Can we stop asking if we are in a bubble now?" venture capitalist Mitchell Kertzman said after hearing that LinkedIn stock was trading above $100. "We are clearly in a valuation bubble."

If the stock market is thirsty for more businesses that connect people on the Internet, there's a backlog of privately held companies that might one day satisfy it.

The short list includes Twitter, the 140-characters-or-fewer messaging service; Zynga, which makes online games like FarmVille; Groupon, the coupon site; and, of course, Facebook, the social network with more than 500 million users.

None of those companies has revealed specific plans for going public. Facebook has at least dangled the possibility of filing for an IPO before May 2012. A private investment led by Goldman Sachs Group Inc. valued Facebook at $50 billion in January.

"If people are this excited about a professional networking service like LinkedIn, you can imagine what kind of frenzy there is going to be when Facebook goes public," said eMarketer analyst Debra Aho Williamson.

The 109 percent first-day gain for LinkedIn, based in Mountain View, Calif., nearly mirrored Netscape's first day when it went public on Aug. 9, 1995. Netscape rose that day from $28 to a close of $58.25, or 108 percent.

Netscape co-founder Marc Andreessen's venture capital firm, Andreessen Horowitz, has invested in Twitter, Groupon, Zynga and Facebook.

As an individual, Andreessen was also an early investor in LinkedIn and is among the more than 102 million people who have posted their resumes and profiles on its website, a buttoned-down version of Facebook's online playground.

It may be as much fun as playing games, chatting and posting pictures on Facebook, but LinkedIn has steadily grown since it started in 2003 and it's now adding about a million accounts a week.

In a key distinction from the dot-com days, it also makes money - $3.4 million last year on revenue of $243 million. Its revenue more than doubled during the first three months of this year, putting it on pace to bring in about $500 million in 2011 from advertising and fees.

Kertzman, managing director of Hummer Winblad Venture Partners, was CEO of Liberate Technologies, a maker of software for TV set-top boxes, during the height of the dot-com boom. In 2000, its market value soared to $12 billion.

"I knew something was wrong because I knew we weren't worth that much and it scared the hell out of me," Kertzman said.

Aaron Levie, CEO of an Internet storage service called Box.net, sees things differently. Levie, who is 26 and was in high school during the dot-com boom, thinks it's a good sign that LinkedIn, Facebook and other companies are taking their time to build companies that make money before going public.

"You can tell this is a very different period than the late `90s," Levie said. "Silicon Valley is definitely back, and much healthier."

LinkedIn's CEO, Jeff Weiner, said he doesn't plan to dwell on high investor expectations.

"It's exciting, but it's a point in time," Weiner said a few hours after he rang the opening bell at the stock exchange, where LinkedIn's shares traded under the symbol LNKD. "One day's trading is not going to be too meaningful, and the same holds true for the next few days and the next few months. I know it sounds a little like a cliche, but we are in this for the long haul."

Weiner, a 41-year-old former Yahoo executive who became head of LinkedIn two years ago, still took some time to celebrate the IPO in a meeting that was beamed to all of LinkedIn's roughly 1,300 employees from the company's offices in the Empire State Building.

Many of LinkedIn's employees are now millionaires, at least on paper. The richest is co-founder and executive chairman Reid Hoffman. Already considered one of the smartest and best-connected people in , Hoffman joined the ranks of the world's billionaires Thursday. Hoffman, 43, owns a 20 percent stake in LinkedIn, good for about $1.8 billion.

That value could wildly fluctuate, based on how other hot technology IPOs have performed through the years.

Until LinkedIn came along, software maker VMware Inc. had boasted Silicon Valley's biggest one-day gain among IPOs completed during the decade after the dot-com bubble burst. VMware stock rose 76 percent on the first day of trading in August 2007. Thirteen months later, it had fallen below its IPO price of $29.

VMware's experience also serves as a reminder that what goes up and comes down can go up again. The company's stock closed Thursday at $93.89.

Explore further: EU Parliament votes to break up Google

3 /5 (2 votes)
add to favorites email to friend print save as pdf

Related Stories

LinkedIn looking for $32 to $35 per share in IPO

May 09, 2011

(AP) -- Professional networking website LinkedIn Corp. hopes to sell its stock for $32 to $35 per share in an upcoming initial public offering. Its IPO may encourage other growing Internet services to make ...

LinkedIn raises IPO ante amid high investor demand

May 17, 2011

Investors are clamoring to connect with the online networking service LinkedIn Corp. in the latest sign of the fervor for Internet companies that specialize in bringing together people with common interests.

LinkedIn looks to link up with investors with IPO

Jan 27, 2011

LinkedIn Corp., the company behind the largest website for professional networking, plans to raise at least $175 million in an initial public offering of stock that could open the IPO floodgates for other ...

LinkedIn IPO stirs Internet bubble fears

May 18, 2011

LinkedIn, the professional-networking website firm, said Tuesday it expects to be worth as much as $4 billion when it goes public soon, sparking fears of another Internet bubble. ...

Recommended for you

EU Parliament votes to break up Google

Nov 27, 2014

The European Parliament voted overwhelmingly for the break-up of Google Thursday in a largely symbolic vote that nevertheless cast another blow in the four-year standoff between Brussels and the US Internet ...

Toyota finds new air bag issue, recalls more cars

Nov 27, 2014

Toyota Motor Corp. recalled more than 40,000 vehicles in Japan on Thursday as part of a worldwide scare over defective air bags and is investigating a new type of air bag problem that could lead to further recalls.

Netflix sues Yahoo CIO for alleged kickbacks

Nov 26, 2014

Netflix is suing a former company vice president who is now chief information officer at Yahoo, accusing him of receiving money from vendors he hired to work with the video streaming company.

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

guiding_light
not rated yet May 22, 2011
Too much hype in the stock market especially with tech companies.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.