In a spectacular first day of trading, shares of LinkedIn Corp. more than doubled in price, surging to gains that brought back memories of the dot-com bubble.
The stock opened on the New York Stock Exchange at $83 (U.S.) a share Thursday and peaked at $122.70 in morning trading, before settling back to close at $94.25. That was a 109-per-cent increase over the initial public offering price of $45 a share – which itself had been considered steep by most market observers.
The huge first day put LinkedIn into an elite group: It's one of only seven U.S.-listed stocks in the post-tech-bubble era to more than double its IPO price in its trading debut. The massive gains lifted the market capitalization of the social-networking company to nearly $9-billion – for a firm on track for roughly $400-million of revenue this year. The stock is priced at more than 1,300 times earnings, based on its 2010 financial results.
"It speaks to the level of interest there is in the investment community to get exposure to the next wave of Internet IPOs," said Paul Bard, director of research at IPO specialist Renaissance Capital LLC in Greenwich, Conn. "But the natural question when you see a deal that gets this much hype is, has it gotten ahead of itself?"
Analysts said the startling success of LinkedIn's public launch has almost certainly emboldened other companies in the social-networking realm to go forward with their own IPOs sooner rather than later. Prominent names such as Twitter Inc., Groupon Inc. and Zynga Inc. are expected to go public this year.
"I would expect that one or more of those three will file [an IPO prospectus]shortly," said Scott Sweet, senior managing partner at IPO Boutique. But he said the jewel of the social-networking segment – Facebook Inc. – probably won't go public until next year.
Huge institutional demand for LinkedIn's IPO in advance of the stock-market debut prompted the company earlier this week to sharply increase its pricing range for the offering – to between $42 and $45 a share from an initial range of $32 to $35. But after seeing the first-day frenzy, some pundits mused that maybe LinkedIn should have shot even higher with its IPO pricing.
Henry Blodget, former bad-boy Wall Street technology analyst turned market blogger, even went so far as to say LinkedIn got poor advice from its IPO underwriters on the pricing.
"The institutional investors who bought LinkedIn's stock last night [from the underwriters]are high-fiving each other this morning, celebrating their instantaneous 90-per-cent gain," he wrote.
"We're very comfortable with where we priced [the IPO]" LinkedIn chief executive officer Jeff Weiner, said in an interview with Bloomberg Television. "We spent a lot of time with investors, and the right kind of investors – folks that understand the story, understand the fundamentals, are in it for the long haul."
One factor that may have contributed to investors' enthusiasm was that fact that, unlike some bit-name Internet IPOs of the past, LinkedIn has already been profitable. It generated profit of more than $15-million, equivalent to 7 cents a fully diluted share, in 2010, and produced more than $2-million in profit in the first quarter of 2011. But the company has warned in its IPO prospectus that it expects to return to a loss for 2011 as a whole, as it spends to expand sales, marketing and international operations.
"A lot of the IPO after-market buying probably will come from retail investors who may not have fully digested the [prospectus]filing, and may be surprised by the expected losses for the next three quarters," wrote analyst Francis Gaskins of website IPO Desktop.
But Mr. Bard of Renaissance said investors are excited by the company's potential for rapid revenue growth both from online advertising and from selling hiring and recruitment tools, with which clients can search LinkedIn's database of subscribers to identify potential hires.
"It has two powerful business streams that, each by themselves, have the potential to be billion-dollar businesses," Mr. Bard said.
David Parkinson