LinkedIn’s Initial Public Offering (IPO) share price more than doubled to $94.25 from $45 on its first day of trading, a 109% increase. With Revenue of $243 million and Net Income of only $15 million, it is valued at $8.9 billion. LinkedIn’s Price to Earnings (PE) ratio is 578 vs. the S&P 500 PE ratio of 15. Investors are buying on emotion!
It is the biggest U.S. Internet IPO since Google went public in 2004, setting the stage for other internet companies such as Facebook, Twitter and Groupon. "LinkedIn is the first one (social- networking company) out," says Matt Therian of Renaissance Capital. "LinkedIn has validated there's quite a bit of interest." The IPO has created riches for venture-capitalists, investment bankers, favored investors and LinkedIn employees.
Is LinkedIn pleased with the results of the IPO? Well, if I was the Chief Financial Officer, I would be pissed off! The lead underwriters, Bank of America and Morgan Stanley, left a lot of money on the table. The IPO was mispriced by the investment bankers who structured it, valuing the stock too low. LinkedIn sold its stock too cheap! If the IPO was priced at $75 a share, LinkedIn and its shareholders who sold would have raised $588 million instead of $353 million. By underpricing the stock, $235 million ($588 - $353) went to investors (i.e., favored institutional clients of Bank of America and Morgan Stanley) instead of to LinkedIn and its shareholders.