Wednesday, May 18, 2011

LinkedIn IPO Value Jumps to More Than $4 Billion


Online social networking service LinkedIn is expected to begin trading on the New York Stock Exchange on Thursday with a value of at least $4 billion, making it the biggest initial public offering by a U.S. Internet company since Google went public in 2004. The company is the first U.S. social networking website to go public.

In its initial public offering, the company set the price range for shares at $32 to $35. On Tuesday, however, the 8-year-old Mountain View, Calif.-based social networking firm boosted the price of its IPO by 30 percent to a new range of $42 to $45 per share, indicating the demand among investors for social networking companies is fierce.

The company plans to set the IPO price tonight and will begin trading on the New York Stock Exchange on Thursday under the symbol "LNKD."

Some analysts believe the new price may be a bit too steep, and that LinkedIn's future is far from secure. One of the chief reasons why some observers are skeptical about LinkedIn's future financial prospects is that the company fully admits it does not expect to be profitable in 2011 based on U.S. generally accepted accounting principles (GAAP).

In addition, technology companies are vulnerable to being displaced. For example, the social networking site MySpace was once the darling of the industry and highly favored. However, it has since become completely overshadowed by Facebook.

There is also the possibility that LinkedIn could be blocked, which could severely hinder its growth. This has already happened in China, where millions of LinkedIn users have been temporarily prevented from using the site.

Another concern is that, unlike other social networking sites, which make most of their money from online advertising sales, LinkedIn's chief source of revenue comes from a sales force that solicits business directly from businesses and resellers. In 2010, LinkedIn pulled in 56 percent of its net revenue from field sales, while only 44 percent of its net revenue came from online sales.

Meanwhile, the Big Four Web firms -- Facebook, Twitter, Groupon and Zynga -- are expected to follow LinkedIn's example and go public in the near future -- with enormous valuations.

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