LinkedIn now plans to sell shares at $42 to $45 each, up from a previous range of $32 to $35. At the middle of that range, the nine-year-old company would be valued at $4.11 billion, or about $40.30 per registered user.
The stock market reception to LinkedIn will be an important gauge of investor appetite for social networking, including the Big Four of the social media space — Facebook, Twitter, Groupon and Zynga — which are widely expected to go public in coming years.
“Investors have to put their money somewhere,” said Yvan-Claude Pierre, a partner with DLA Piper in New York.
“There’s a lot of money chasing very few deals.”
LinkedIn’s growth has been rapid: It doubled its revenue last year to $243.1 million and posted net income for common shareholders of $3.4 million.
LinkedIn is priced at almost 17 times 2010 revenue, while Google, by comparison, is trading at about six times sales.
However, in the risk factors section of its prospectus, the company disclosed that it does not expect to be profitable in 2011 based on US generally accepted accounting principles.
“Our philosophy is to continue to invest for future growth, and as a result we do not expect to be profitable on a GAAP basis in 2011,” the filing said.
Eric Jackson, managing member at the hedge fund Ironfire Capital, would not “touch the stock” at $45.
“Maybe at $25,” he said.
While he thinks there is a lot going for LinkedIn including its built-in professional audience, the biggest problem is its profitability.
“LinkedIn has its niche and Facebook has its niche. Facebook’s is much bigger and much more profitable,” Jackson said.
It is not uncommon for an unprofitable company to seek a public listing, but it could give investors pause to see a company bluntly predict swinging to a loss during its first year as a publicly traded stock.
“If LinkedIn goes out and doesn’t trade well that could present a problem marketing other social media companies going forward,” said DLA Piper’s Pierre.
Companies like Facebook, Twitter, Groupon and Zynga have stoked investor interest in social media companies and command multibillion-dollar private market valuations. But there are signs that investor appetite could be waning.
Renren, a company sometimes called the Facebook of China, went public in the US earlier this month. Its shares soared 29 percent in their debut but have since dropped below the IPO price.
French social networking site Viadeo, the second-biggest social networking site for professionals behind LinkedIn, said on Monday it would defer plans to go public.
Of the 7.84 million shares LinkedIn is offering, 4.83 million will come from the company and the rest from stockholders.
LinkedIn co-founder and ex-PayPal executive Reid Hoffman is among the stockholders selling shares in the IPO, but he will still have 21.7 percent of the voting power in the company after the offering. LinkedIn began in Hoffman’s living room in 2002.
Other big stakeholders selling shares in the IPO include Goldman Sachs, Bain Capital Venture Integral Investors LLC and McGraw-Hill Cos.
LinkedIn, based in Mountain View, California, helps professionals find new business contacts and reconnect with old ones.
“It’s like a Rolodex on steroids,” said Rich Stromback, a venture capitalist who uses LinkedIn frequently.
Underwriters on the offering are being led by Morgan Stanley, Bank of America and JPMorgan. The company’s shares were expected to begin trading on the New York Stock Exchange on Thursday under the symbol “LNKD.”
