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May 20, 2011 11:51 pm
LinkedIn shares dipped below their first-day closing price on Friday, as traders locked in gains and questions swirled around its extraordinary valuation.
The shares soared 109 per cent in their debut, from their initial offering price of $45 to $94.25, and at one point reaching $122. At the closing price, LinkedIn was valued at $8.9bn, making it the biggest initial public offering of a technology company since Google’s in 2004.
But on Friday, trading was much more volatile, and by the closing bell the shares dipped 1.2 per cent to $93.09 a share, for a market value of $8.8bn.
LinkedIn has attracted a great deal of attention as the first in the Facebook generation of US social networking groups to go public, drawing the biggest crowd on the floor of the New York Stock Exchange in some time.
But its first day “pop” – the biggest for a US company since 2006 – has also drawn unflattering comparisons to companies that debuted during the “dotcom bubble” of the 1990s and failed to live up to expectations.
LinkedIn, which counts 100m users, sells premium subscriptions, but also charges headhunter firms for deeper access, which makes up about 50 per cent of its $243m revenues last year, double what they were in 2009. LinkedIn also had net income of $15m in 2010.
Jeffrey Weiner, LinkedIn chief executive, told the Financial Times on Thursday that globally, the market for professionals was about 640m people, out of the broader 3bn workforce. “We still feel we’re in the early innings,” he said. The three largest venture capital investors in LinkedIn sold no shares in the offering.
Many independent analysts, while acknowledging LinkedIn’s strengths, have questioned its ability to meet the ambitious growth targets implied by its current valuation, some 30 times its past year of sales. That is also about where Facebook trades in private markets, according to Nyppex, a private-shares marketplace.
“At these prices people are expecting the kind of margins that Google gets, but that will be tough to do. How much further can LinkedIn grow from 100m?” said Espen Robak of Pluris Valuation Advisors, which values illiquid securities.
Doug Martin, a trader at Kitano Capital, a private investment firm, bought shares in the IPO, reasoning that $45 a share was at the high end of LinkedIn’s reasonable value. But he sold them at $99.25 on Thursday.
“I’m not in the camp that thinks we’re back to 1999. LinkedIn does have earnings. But I certainly don’t want to own it at this price. I don’t understand their business model well enough, how they’re going to monetise,” said Mr Martin.
“I’ve made my money for the day, and now I’ll wait for Twitter, Facebook and Zynga to come out,” he added.
Part of the huge LinkedIn volume – almost 40m shares in the first two days, about four times the number of shares sold – was due to its relatively small float, just 9m shares including its “greenshoe” overallotment. Large retail brokerages, which did not see allocations from the deal, according to people familiar with the offering, saw huge demand in the secondary market.
LinkedIn represented 5.3 per cent of TD Ameritrade’s trades on Thursday, and 3 per cent on Friday, the retail brokerage said. No IPO had been that high since General Motors’ in November.
“The high volume we saw [on Thursday] was a lot of retail traders seeking momentum trading opportunities,” said Nicole Sherrod, managing director of the trading group at TD Ameritrade, the US retail brokerage.
“Now a lot of traders are also asking how they can short the stock," she said.
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