UPDATE 3-LinkedIn IPO prices at $45/share, but risks real

* LinkedIn IPO prices at $45 vs revised $42-$45 range

* Sells 7.84 million shares, raises $352.8 million

* IPO expected to be successful, but risks abound-analysts

* LinkedIn does not expect to be GAAP-profitable in 2011

* Majority of revenue comes from direct sales force
(Adds details on valuation, underwriters)

By Alina Selyukh and Clare Baldwin

NEW YORK, May 18 (Reuters) - LinkedIn sold $352.8 million
worth of shares in its initial public offering on Wednesday,
signaling that stock investors are eager to buy shares of
social networking companies even if valuations are lofty.

LinkedIn sold 7.84 million shares for $45 each, a higher
price than the company was expecting even earlier this week.
[ID:nL4E7GH1KA]

The strong investor demand for the offering bodes well for
other social networking companies expected to go public in the
coming months, including Facebook, Groupon, Twitter and Zynga.

While the companies have significantly different business
models, they each tap social networks and the valuations for
each are skyrocketing.

LinkedIn is a nine-year-old company that as of Wednesday is
worth $4.25 billion. Facebook, which is expected to go public
in April 2012, was valued at $70 billion in recent sales of the
company's private shares, up from $50 billion at the beginning
of the year.

"There is a feeding frenzy is going on," said Ben Howe,
chief executive of boutique investment bank America's Growth
Capital.

But to proponents of the value of connecting people online,
the high market values of these companies may make sense.
LinkedIn, for example, is an excellent way for companies to
reach prospective customers, one venture capitalist said.

"Social networking is the most efficient customer
acquisition strategy in the world," said Saad Khan, a partner
at venture capital firm CMEA Capital.

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LinkedIn ups IPO range [ID:nL4E7GH1KA]

Breakingviews-IPO recalls credit boom [ID:nN17148191]

Reuters Insider clip on IPOs:

link.reuters.com/bus59r

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Groupon, which brings people together for deals, has had
talks with bankers about an IPO that could value it at $15
billion to $20 billion. [ID:nN14107204]

Yet, even with all of the hype, there has not really been a
test of how hungry public investors are for these stocks.
LinkedIn is that test, and evidently demand is strong.

Investors were willing to buy LinkedIn shares despite that
fact that they come with fewer voting rights than the shares
held by LinkedIn founders, managers and staff.

The company's shares were sold at about 17.5 times the
company's 2010 sales, compared with Google's valuation of about
six times.

America's Growth Capital's Howe said it could be difficult
for LinkedIn to sustain that high valuation.

"There are companies that are going to have very strong
positions in massive markets such as Facebook," Howe said.

"But I think most of the other companies that are riding on
their coattails and getting these enormous valuations do not
fit the same profile and are just extremely overvalued," he
added.

THE RISKS

One of LinkedIn's biggest risks may be its gutsy bet on its
future growth -- combined with an admission that it does not
expect to be profitable in 2011 on a U.S. generally accepted
accounting principles (GAAP) basis.

"Frankly, they're a little bit arrogant saying, 'We're
going to have a great IPO, but we're also going to lose money
this year,'" said Francis Gaskins, IPOdesktop.com president.

After two years of losses, LinkedIn made money for its
common stockholders in 2010 -- but then it was back to breaking
even in the first quarter of 2011.

In the risk factors section of its prospectus, LinkedIn
said the rest of the year could be the same, or worse:

"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 company said.

LinkedIn added that it expects its revenue growth rate to
decline over time and its costs to increase.

The risk factors section of any prospectus is designed to
encapsulate worst-case scenarios.

But many investors would not likely be pleased with a
profitable company flatlining or swinging to a loss in its
first year as a publicly traded stock.

Earlier this week, the chief executive of LinkedIn's French
rival, Viadeo, told Reuters his venture would delay its IPO, in
part because of concerns of having to answer to shareholders
about profitability. [ID:nLDE74F0D9]

INTERNET STOCK?

Another peculiar fact about LinkedIn is that it's not quite
the Internet company most consider it to be.

Most of the biggest social networking sites mainly make
their money through online advertising or Internet services.

LinkedIn is an online platform but actually makes more
money through so-called field sales, or a sales force directly
soliciting customers, agencies and resellers.

In 2010, fifty-six percent of LinkedIn's net revenue came
from field sales, while 44 percent came from online sales.

"(Feet on the street) is an expensive sales force,"
IPOdesktop.com's Gaskins said. He added that almost half of
LinkedIn's business comes from selling "hiring solutions,"
which help match companies and job-seekers, a space where
LinkedIn could face tough competition from niche job-seeking
sites and traditional recruiting firms.

Underwriters on the IPO were lead by Morgan Stanley, Bank
of America Merrill Lynch and JPMorgan. The company's shares are
expected to begin trading on the New York Stock Exchange on
Thursday under the symbol "LNKD."
(Reporting by Alina Selyukh and Clare Baldwin; Editing by
Dhara Ranasinghe, Andre Grenon and Steve Orlofsky)