Investors show appetite for Web 2.0 as LinkedIn soars

Photo: Reuters

Shares jump nearly 90% in public trading debut pushing the market capitalisation of the company to about $8bn

FOREIGN STAFF

Published: 2011/05/20 06:38:16 AM

SHARES of LinkedIn surged nearly 90% in their public trading debut yesterday, a jump reminiscent of the heyday of investors’ love affair with internet stocks in the late 1990s.


The shares rose to $85,18 in morning trade on the New York Stock Exchange, 89,3% above their $45 initial public offering price. That pushes the market capitalisation of the company to about $8bn.


LinkedIn is the first prominent US social networking company to test publicly just how hungry investors are for Web 2.0 inhabitants as people turn to other hot names in the space: Facebook, Groupon, Twitter and Zynga.






Members of LinkedIn use the site to search for jobs, recruit employees and find industry experts. While users can create personal profiles free, paid subscriptions were introduced in 2005, giving recruiters more access to candidates and providing professionals with a portal to communicate with one another. The company gets 70% of revenue from business subscriptions, a model similar to Salesforce.com .




"The valuation for LinkedIn is rich," Michael Moe, chief investment officer of GSV Capital Management in California, said yesterday . "To earn the valuation, it has to continue to grow very, very fast."




Proceeds from the offering will be used to fund existing operations and expand the business, including possibly buying other companies or technologies, LinkedIn told the US Securities and Exchange Commission.


Including an over-allotment option for underwriters to buy 1,18-million extra shares, LinkedIn may raise as much as $405,7m.




While LinkedIn is compared with social networks such as Facebook and Twitter , which depend on advertising to consumers, the company said in its prospectus that a "substantial portion" of revenue comes from a business that is comparable to the software-as-a- service (SaaS) model. That is where companies deliver software over the internet, a market expected to climb 16% this year to $10,7bn, according to Gartner , a research firm in Connecticut.


SaaS companies, including Salesforce, NetSuite and SuccessFactors, sell subscriptions over the internet rather than long-term licences like traditional business- software companies. Reuters, Bloomberg