NEW YORK/BANGALORE (Reuters) – LinkedIn Corp, the social site for business professionals, is hoping to cash in with investors eager to gobble up shares in sites such as Facebook, with a public debut valuing the company at more than $3 billion.
LinkedIn, which attracts professionals and job seekers with 100 million worldwide members, said on Monday it would offer 7.84 million shares priced between $32 and $35 apiece. It is generating significant interest as one of the first social networking companies to start the process of being publicly traded — ahead of the much-anticipated Facebook IPO.
Companies including Twitter, Groupon and Zynga have generated significant interest and are seeing multibillion- dollar valuations of their shares trading on the secondary markets.
Last week, Renren Inc, one of the biggest social networking companies in China, made its trading debut after a successful IPO — another indicator of investor interest in the hot social media companies space. Renren's stock surged 28.6 percent in its May 4 debut.
Investor appetite for private companies that specialize in virtual gathering and communication seems to be insatiable even though there are signs that valuations have outstripped growth.
LinkedIn warned in a government filing that it expects its revenue growth rate to decline and its costs to increase. It raised the flag that it "may not be able to generate sufficient revenue to sustain our profitability over the long term."
It does not expect to be profitable this year.
LinkedIn makes money by selling members premium subscription services, and businesses hiring and marketing solutions. The company earned $15.4 million in 2010 on net revenue of $243 million, implying a multiple of roughly more than 12 times 2010 revenue.
"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, in particular, the more ubiquitous Facebook network," said Jay Ritter, a professor of finance at the University of Florida.
Still, investors may brush right past any revenue and profitability concerns as they did with Renren. Though Renren had a spectacular IPO, it is still an unprofitable company, but its Chief Executive Joseph Chen said it was on track to make money soon.
Renren's shares were trading at slightly more than 80 times annualized sales for the six months that ended December 31, 2010, IPOdesktop.com President Francis Gaskins estimated during its debut last week.
Facebook is valued at 35 times last year's sales in gray market trading.
"I don't think there are a lot of investors with limited amount of funds who are going to say look I'm going to buy one (Facebook) and not the other (LinkedIn)," Ritter said. "I don't see them as competing for investor dollars."
HIRING SPREE
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 Reid Hoffman, who is among those stockholders selling shares in the IPO, would represent about 21.7 percent of voting power after the offering.
Other key stakeholders offering shares include Goldman Sachs, McGraw-Hill Companies Inc and Bain Capital Venture Integral Investors LLC.
Major investors Sequoia Capital, Greylock Partners and Bessemer Venture Partners, which together own about two-fifths of the company, will not be participating in the IPO.
In January, LinkedIn had filed with U.S. regulators for an IPO to raise up to $175 million.
The company expects to receive net proceeds of about $146.6 million from the shares it is offering in the IPO, based on an assumed offer price of $33.50 apiece.
It plans to use the proceeds toward product expansion, hiring, and acquisitions.
It has applied to list its shares on the New York Stock Exchange under the symbol "LNKD."
(Reporting by Jennifer Saba and Alina Selyukh in New York and Brenton Cordeiro in Bangalore; Editing by Maureen Bavdek)
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