* Investor caution grows
* LinkedIn valued at 12 times 2010 sales, Renren at 78
(Adds analyst comments)
By Jennifer Saba and Brenton Cordeiro
NEW YORK/BANGALORE, May 9 LinkedIn Corp has
priced its closely watched initial public offering at a bargain
compared to rivals such as Renren Inc RENN.O 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 (RENN.N), one of China's biggest
social networking companies, rose 29 percent in its debut on
the New York Stock Exchange. [ID:nN04185096]
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 (GOOG.O) and Yahoo's (YHOO.O) 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. [ID:nN27185713]
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 Dec. 31, 2010. Facebook is valued at 35 times last
year's sales. [ID:nN03295659]
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
Other big stakeholders offering shares include Goldman
Sachs (GS.N), McGraw-Hill Companies Inc MHP.N 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
(Additional reporting by Yinka Adegode and Alina Selyukh in
New York. Editing by Edwin Chan and Robert MacMillan)