LinkedIn doubles its value in stock market debut

The social network has out-performed analysts' wildest expectations during its first day as a public company. But even management suggests that's not sustainable.

by Emma Haslett
Last Updated: 05 Aug 2011
Well, that’s that, then. After much fevered speculation over how social networking site LinkedIn would fare when it made its stock market debut yesterday, the nay-sayers have their answer: brilliantly. The company’s shares doubled in value just hours after they hit the market, pushing the value of the business up to a whopping $9bn. But there are still concerns that, since it has yet to make a profit, its stellar performance on the market is nothing more than hype. Sound familiar?

When the market opened yesterday morning, shares in LinkedIn were trading at $45, valuing the firm at $4.3bn, before they were pushed up to $94.25, raising $353m for the company. Founder Reid Hoffman was a billionaire by the end of the day – his 22% stake is now valued at $1.7bn, while stakes owned by the private equity firms that back it were worth $3.3bn at close of trading. To put things in perspective, if LinkedIn had made its debut in London, it would have been catapulted straight to 58th position on the FTSE 100. Not bad.

But LinkedIn’s management team seems realistic about its prospects – as demonstrated in the firm’s offer document, which explained to potential investors that ‘we have a short operating history in a new and unproven market which really makes it difficult to evaluate our future prospects’. It also made no bones of the fact that it’s planning to plough all of its revenues into growing, and has little intention of making a profit anytime soon. Even CEO Jeffrey Weiner (now worth a cool $200m – for the time being, at least) pointed out the rise in prices isn’t sustainable. ‘The market will do what it will do,’ he philosophised.

As we pointed out on Wednesday, LinkedIn’s progress will be closely watched by the likes of Facebook, Twitter, Groupon and Farmville developer Zynga, all of which have indicated that they’d like to launch an IPO at some point in the near future. So far, so good – but there are already concerns that LinkedIn’s rapid increase in value is a warning sign that there’s another dot-com bubble on the way. Buyer, beware…

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