Issue of the week: LinkedIn’s storming debut

last updated 8 January 2015

It looked like 1999 all over again, said Gary Rivlin in TheDailyBeast.com. LinkedIn, “a solid but second-tier” social-networking site for the career-minded, made its bow as a public company last week, and what a coming-out it was. The stock, offered at $45, shot immediately to $83, then climbed to $122.70 before closing at $94.25, for a gain on the day of 109 percent. Like “the shell-shocked war veteran who flinches each time he hears a loud noise,” market observers immediately announced a return to the bad old days when “half-baked concoctions” such as Webvan and Pets.com went public with barely any revenues to their names, much less profits. But under CEO Jeff Weiner, LinkedIn actually earned a profit of about $15 million last year. This time, investment banks are filtering out all but “established companies with significant revenues” to take public. One IPO does not a bubble make.

You’re kidding, right? asked John Dvorak in MarketWatchâ€‹.com. How can a company with $15 million in profits have a stock market value of $9 billion? It’s clearly the beneficiary of the same “mania and desire to own cool little companies” that sent the tech sector hurtling off a cliff in the early years of this century. But this isn’t a straight rerun of the previous tech bubble. Back then, hundreds of flaky companies went public. Today, the very rarity of IPOs feeds a feverish demand for any shares that do find their way to the public markets. But just as in 1999, the inevitable bust is coming. “Fingers will be pointed and the money will dry up again,” and tech start-ups will go begging for the funds they need to grow and innovate.

In classic capitalist fashion, LinkedIn’s IPO benefited a lucky few at the expense of many, said Ryan Tate in Gawker.com. Favored clients of Morgan Stanley, JPMorgan, and the other underwriters of the deal enjoyed a one-day thrill ride, while the little guys prepared to get the shaft. The primary victims will be the customers of this “annoyingly pointless social network,” whom LinkedIn will now “gouge” for more access fees. LinkedIn will have to recruit a lot more of them to justify its outrageous valuation, but just how many “friend-spamming careerists” can it hope to sign up? When tallying the victims of LinkedIn’s IPO, don’t forget the company itself, said Joe Nocera in The New York Times. Its investment bankers grossly underpriced the deal, handing their pet customers hundreds of millions in trading profits that should have gone to LinkedIn. The company’s insiders were probably “thrilled to see the run-up,�� but they should be furious. “LinkedIn is supposed to be the client, but it was treated like the mark.”