LinkedIn IPO price hints at social media caution

NEW YORK/BANGALORE Mon May 9, 2011 6:05pm EDT

Linkedin CEO Jeff Weiner speaks during the Reuters Technology Summit in San Francisco, May 17, 2010. REUTERS/Robert Galbraith

Linkedin CEO Jeff Weiner speaks during the Reuters Technology Summit in San Francisco, May 17, 2010.

Credit: Reuters/Robert Galbraith

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NEW YORK/BANGALORE (Reuters) - LinkedIn Corp has priced its closely watched initial public offering at a bargain compared to rivals such as Renren Inc and Facebook, underscoring growing caution over social media valuations.

The debut of the social network for professionals founded by ex-PayPal executive Reid Hoffman values the nine-year-old firm at $3 billion. At about 12 times 2010 sales, its IPO is cheap compared to 78 times for Renren, the Chinese site often likened to Facebook.

Companies including Twitter, Groupon and Zynga have stoked heavy interest from investors betting on social media only getting hotter. Their shares, traded in markets for private investors, are commanding multibillion-dollar valuations.

Last week, Renren Inc, one of China's biggest social networking companies, rose 29 percent in its debut on the New York Stock Exchange.

LinkedIn is valued at a discount to peers, but as a social network, it is priced several times more than the likes of Google's and Yahoo's 4 to 5 times sales.

"In terms of the potential of how profitable LinkedIn can be, that's where most people feel that its upside potential is a lot more limited than some of the others," said Jay Ritter, a professor of finance at the University of Florida.

Sources say that even Facebook's seemingly inexorable climb in valuation may be peaking. In recent weeks, a group of investors looking to sell its shares showed a willingness to settle for a lower price than they wanted.

LinkedIn, which caters to professionals and job seekers, may not enjoy the same growth prospects as Facebook.

"LinkedIn is a subset of Facebook," said IPOdesktop.com President Francis Gaskins, who was disappointed by its revenue. "It's limited by its targeted market relative to Facebook."

The company earned $15.4 million in 2010 on net revenue of $243 million from roughly 100 million users, implying a multiple of roughly more than 12 times 2010 revenue.

In contrast, Renren's shares are trading at slightly more than 78 times the estimated annualized sales for the six months that ended December 31, 2010. Facebook is valued at 35 times last year's sales.

Gaskins said LinkedIn's valuation is rich considering its price to earnings ratio of 200 times 2010 earnings.

"LinkedIn is going to try and catapult off Renren's numbers," he said. "Uninformed investors will go after it."

There's little doubt among analysts and investors that LinkedIn will do well in its public debut. "I think we're far from a bubble bursting, and these kinds of events are just going to be a fuel to help the party continue for a couple more years at least," said Eric Jackson, managing member at Ironfire Capital, which owns stock in Yahoo and Renren.

LIMITED GROWTH POTENTIAL

LinkedIn said on Monday it would offer 7.84 million shares priced between $32 and $35 apiece, valuing the company at more than $3 billion.

In a government filing, LinkedIn warned that it expects its revenue growth rate to decline and its costs to rise as it ramps up hiring and re-invests in the business, and that it will lose money this year.

It cautioned that it "may not be able to generate sufficient revenue to sustain our profitability over the long term." LinkedIn makes money selling members premium subscription services, and hiring and marketing services.

LinkedIn is offering 4.8 million shares, and the rest will be sold by some of its stockholders.

Shares owned by co-founder and LinkedIn board Chairman Hoffman, who is among those stockholders selling shares in the IPO, would represent about 21.7 percent of voting power after the offering.

Other big stakeholders offering shares include Goldman Sachs, McGraw-Hill Companies Inc and Bain Capital Venture Integral Investors LLC.

Investors Sequoia Capital, Greylock Partners and Bessemer Venture Partners, which together own about two-fifths of the company, will not participate in the IPO.

The company expects to receive net proceeds of about $146.6 million from the IPO, based on an assumed offer price of $33.50 a share. It plans to use the proceeds toward product expansion, hiring and acquisitions.

Morgan Stanley, Bank of America and JPMorgan are among the bookrunners for the LinkedIn offering. It has applied to list its shares on the New York Stock Exchange under the symbol "LNKD."

(Additional reporting by Yinka Adegode and Alina Selyukh in New York. Editing by Edwin Chan and Robert MacMillan)

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