On May 19 the IPO for the professional social network LinkedIn will start. Trading will take place at the New York Stock Exchange and the symbol of the company will LNKD. 7.84 million shares will be sold at a price per share between $32 and $35 so at the end of the IPO LinkedIn should be valued around $3 billion.
This IPO represents the culmination of this year’s operations started in January with the announcement of this move and the beginning of the necessary procedures. At that moment the hope was to sell shares for a total of $175 million but now the goal is to reach around $275 million.
What has changed in less than five months to bring about a difference of $100 million? It’s true that the last year LinkedIn had a profit of over $10 million and in March it crossed the 100 million users threshold but those reasons aren’t good enough.
Actually what’s making the difference is the new wave of investments in the new generation of companies offering Internet services, especially social media. LinkedIn is the first major American-based social network to be listed on the Stock Exchange and many want to secure a slice of the pie. It’s not the absolute first to take this step: at the beginning of May the Chinese social network Renren made an IPO at $14 per share but after the initial euphoria the value of its shares fell on the following days. It’s however too early to make a serious assessment of the results of Renren’s IPO.
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Anyway LinkedIn seems a stronger case because it’s a social network that’s continuing to grow worldwide in the number of registered users but also of Premium users, the ones who pay for its additional services, so it’s a much better situation than Renren’s.
The stock of LinkedIn’s shares was divided into two classes: the Class B which will be kept by the founders and early investors and the Class A that will be sold to the public. The big difference in decision-making is that the Class B shares provide ten votes per share while the Class A ones give one vote per share.
The meaning of this division is to prevent attacks on the company through the purchase of Class A shares or other actions that might create problems to LinkedIn management.
LinkedIn’s IPO will be an example to be kept under observation waiting for the ones coming in the next months by other social media such as Groupon, Zynga, and even Facebook. The impression is that a lot of money will be spent for those companies’ shares because now those types of services are kind of trendy.
However this seems to have become a bubble of the type seen about a decade ago with the first generation of Internet companies. For some time anyone with an interesting idea in that field could sell it for a lot of money but after a while the bubble burst and many people suffered big financial losses. Considering the fact that we’re still trying to recover from the last economic crisis a further recession would exacerbate the situation even more.
