Shares of LinkedIn (NYSE:LNKD), a professional networking site, soared as high as $122 on its first day of trading on New York Stock Exchange, bringing back memories of the tech bubble in late 1990s when investors lapped up internet firms.
The initial public offering of LinkedIn was underwritten by Morgan Stanley, BofA Merrill Lynch, J.P. Morgan, Allen & Company and UBS Investment Bank.
LinkedIn shares opened trading on May 19 at $83, an 84 percent rise from its initial price of $45 and surged as high by 173 percent to $122.70. The stock closed Thursday's trading up $49.25 or 109 percent at $94.25.
With the spectacular reception for the shares of LinkedIn, it is believed that another tech bubble may be in the offing and is setting a stage for lot of other possible IPO candidates including Facebook, Groupon, LivingSocial, Skype, Zynga, Twitter and Travelocity.
Market observers say the latest tech bubble could be different from the previous one that saw the bust of several technology firms. They say relatively only few companies are going public and those companies do have a good track record of revenue and profitability.
Founded in December 2002 and launched in May 2003, LinkedIn competes with Monster (NYSE:MWW) in recruitment services market; Facebook and Twitter in social networking; and Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) in online advertising market.
California-based LinkedIn, which has about 100 million plus members as of March 2011, makes most of its money through recruitment services and job postings, ads, marketing and subscriptions.
LinkedIn was valued at over $3 billion two weeks ago, but now it worth $8.91 billion. Such big valuation for a firm that generated only $243 million revenues in 2010 is considered as little bit hefty and the company really needs to deliver to sustain its hefty valuation.
The firm, which operates in over 200 counties, earned only $3.4 million in 2010.
We estimate the number of job postings on LinkedIn were around 300K in 2010 compared to about 2 million for job site Monster.com. LinkedIn will have to grow job postings significantly over the next few years to support the valuation, stock analysis firm Trefis said.
Trefis said it estimates that LinkedIn had about 250,000 of premium account subscribers in 2010 paying on average about $250 annually.
We forecast that LinkedIn will grow subscribers to over 1 million by the end of the Trefis forecast period, it said.
This recruiting services segment accounts for majority of revenue for LinkedIn. The company offers advanced and custom recruiting services for corporate and business customers that pay on average an estimated $22,000 annually to LinkedIn.
These advanced services help businesses to maintain a presence on LinkedIn, post jobs, better find passive job candidates, better manage their recruitment process and collect information on who is interested in their business.
As of March 2011, 73 of Fortune 100 companies used LinkedIn's hiring solutions services and Trefis expects the average number of LinkedIn corporate and business customers has increased from about 450 in 2008 to 2,700 in 2010 and forecast that it would increase about 30,000 by the end of its forecast period.
Overall, LinkedIn will have to maintain the significant fees it charges to corporate and business customers while growing its corporate and business customer base significantly from a few thousand customers today to tens of thousands over the next few years.
At the same time, LinkedIn will need to maintain or grow its job post pricing in the face of competition from a variety of sources including Monster, Careerbuilder, TheLadders and Dice.
Continuing to grow the LinkedIn member base, increasing the amount of information that LinkedIn members share and the freshness of that information will be crucial to maintaining demand from recruiters and business for LinkedIn's services, Trefis added.
By having the most comprehensive and up to date information on active and passive job candidates, LinkedIn will position itself to be a destination site for recruiters looking for highly effective, targeted job postings and advertisements.
LinkedIn Fast Facts
* The site officially launched on May 5, 2003. At the end of the first month in operation, LinkedIn had a total of 4,500 members in the network.
* The site, started out in the living room of co-founder Reid Hoffman in 2002, sees one million new members join its network every week. Hoffman holds 20 percent of LinkedIn shares, according to regulatory filings.
* The company's current Chief Executive is Jeffrey Weiner, a former Yahoo executive, has over 16 years of experience as a consumer Web product executive. Under his leadership, LinkedIn has tripled its revenue, rapidly expanded its global platform and increased its membership base from 33 million to 100 million members around the world.
* LinkedIn operates the world's largest professional network on the Internet with more than 100 million members in over 200 countries and territories.
* More than half of LinkedIn members are currently located outside of the United States.
* There were nearly two billion people searches on LinkedIn in 2010.
* As of Jan. 2011, LinkedIn counts executives from all 2010 Fortune 500 companies as members; its hiring solutions were used by 73 of the Fortune 100 companies as of March 22, 2011.
* More than 2 million companies have LinkedIn Company Pages.