May 17, 2011 7:09 pm

LinkedIn raises its projected IPO target

LinkedIn, the business-focused social network, has sharply raised the projected price of its initial public offering in the latest sign of the pent-up demand to buy into the latest crop of high-growth internet start-ups.

The Silicon Valley company on Tuesday raised the top price of its planned share sale from $35 to $45 a share, the biggest one-off increase in an IPO since the tech bubble peaked in 2000. The amount it expects to raise is now as much as $406m, and its stock market value is as much as $4.25bn.

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LinkedIn has received enormous attention as the first in a wave of US social networking and Web 2.0 companies to go public, ahead of its larger rival Facebook, retail services company Groupon and social games service Zynga.

The level of interest has added to questions about whether internet stocks have become overheated because of scarcity value.

“They’re getting incremental demand not even directly as a result of their business, but as a result of having scarcity in the social networking space,” said Reuben Daniels, co-founder of EA Markets, a capital markets advisory firm.

The oversubscription for LinkedIn’s shares is one symptom of the lack of alternatives, according to Niklas Zennström, co-founder of Skype and one of the investors who agreed to sell that company to Microsoft last week for $8.5bn. The emergence of private markets for shares of hot technology companies had boosted valuations by leaving fewer shares for retail investors, he said in an interview with the Financial Times this week.

LinkedIn’s valuation – at 17 times last year’s sales of $243m – will still lag behind that of Facebook in private markets. The biggest social network is valued at 32 times estimated 2010 sales, according to Nyppex, a private share market.

Part of the reason for the jump in the indicated range for the IPO has been the relatively small number of shares floated, just 7.8m out of 94m outstanding shares. The three largest venture capital investors are selling no shares. The overall sale could reach 9m shares if an overallotment is exercised by the underwriters, which are Morgan Stanley, Bank of America Merrill Lynch and JPMorgan.

Shares are set to price on Wednesday after the US market close, and begin trading on Thursday.

“The road shows have gone extremely well and been very well attended,” said Scott Sweet, an investor and senior managing partner of IPO Boutique, a research firm.

Reid Hoffman, Linkedin co-founder and current chairman, and the company’s original shareholders will retain significant voting control through Class B shares.

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