Bubble fears as LinkedIn value soars to $8.3bn
Published 20/05/2011 | 05:00
LINKEDIN shattered expectations with its initial public offering (IPO) yesterday, with shares in the company doubling in value on their first day's trading in New York.
Shares in the business networking, which employs more than a hundred people in Dublin, rose as high as $106.90 (€74.66) in afternoon trading for a 137pc increase on its opening price. The company had sold 7.84m shares at $45 each -- at the top end of market expectations.
The share price gives LinkedIn a market capitalisation of $8.36bn (€5.84bn).
As recently as last year, private shares sold on the secondary market implied a company value of $1.3bn.
The company is now trading at a colossal 1,541 trailing price to earnings (P/E). In comparison, Google's trailing P/E is 20.6, while Apple has a ratio of 16.1. Microsoft's equivalent is 10.
Those sort of numbers have raised fears of a new tech bubble, and while company founder and chairman Reid Hoffman is expected to make more than $1.6bn on the flotation, there are fears that investors buying now may lose out long term.
The company only made $2.1m last year on revenue of $93.9m. In its IPO prospectus, LinkedIn said it expected its "revenue growth rate to decline, and, as our costs increase, we may not be able to generate sufficient revenue to sustain our profitability over the long term".
But LinkedIn chief executive Jeff Weiner shrugged off the trading craze, or even worries that the pricing underestimated the appetite for the stock.
"Speaking for myself, personally I'm not even thinking twice about where the price is today and leaving money on the table or even anything remotely along those lines," he said, adding that the stock "will take care of itself" and trade on fundamentals.
He also cautioned against viewing LinkedIn as a proxy for other big-name IPOs potentially coming to the markets, saying they will also be driven by those companies' fundamental values.