Bulls and bears debate over LinkedIn's IPO

On Thursday, LinkedIn's stock (NYSE:LNKD) skyrocketed to over $105 a share from its initial offering price of $45. During its first day of trading, the stock reached a peak of $122.70, a 173% gain. In comparison, Google, the last major US Internet services company to go public, was offered at a price of $85 and rose only 18% in its first day.

Investors are certainly not that surprised and triple digit gains in a single day are not unseen in technology IPOs. In fact, Chinese websites Baidu.com and Youku.com, China's equivalent to Google and Youtube respectively, both had triple-digit percentage gains on their first day of trading.

Jeffrey Weiner, LinkedIn's Chief Executive Officer, was not among the skeptics who raised an eyebrow at LinkedIn's phenomenal IPO. "To be honest with you, I didn't give a lot of thought to what the opening would be like... this isn't necessarily indicative of anything. The market will do what it will do. What we are completely focused on is our long-term plans and our fundamentals, and getting that right."

LinkedIn differs from other social media in that two-thirds of its revenue comes from selling recruitment services and premium access rather than being dependent on advertising fees like Facebook. In this respect, analysts believe that LinkedIn is more like a software-as-a-service company like Salesforce than it is a straight-up social network. However, only 0.5% of users have premium accounts and LinkedIn's future success still hinges on monetizing its massive unpaid user base through better advertising.

Kathleen Smith, a principal at Renaissance Capital believes that "the issue is the turnover of the users on the sites: the stickiness of the user, the reliability of the repeat user. You want a sticky user base for ads and revenues" She worries that users only use LinkedIn when they need to find a job and ignore it after they do. To LinkedIn's credit, the website has anticipated these concerns by unveiling new features such as LinkedIn Answers and the home feed to make its experience more social.

"The market will do what it will do. What we are completely focused on is our long-term plans and our fundamentals, and getting that right." -- Jeffrey Weiner, LinkedIn CEO

The big question is whether LinkedIn is the exception or the rule when it comes to valuing social networks. Tom Donino, a partner at First New York Securities wondered "why people were so enamored to buy this stock on the open," adding that LinkedIn's underwriters "had already ratcheted the price up to what everyone thought was a pretty high price." With major social networks like Twitter and Facebook preparing for IPOs of their own, it will be interesting to see how investment bankers value those companies after LinkedIn left nearly $500 million on the table.

Sources:
Wall Street Journal
Huffington Post