Uncharted Territory – Social Media on Wall Street
As the first social media site to go public, LinkedIn’s IPO last week created a surge of investor activity on Wall Street that was met with enthusiasm by some, and calls for caution by others. As the biggest Silicon Valley IPO since Google went public in 2004, the pre-IPO share price climbed to $45, and when the stock started trading on the New York Stock Exchange it hit an intra-day high of $122.70 before settling back to close the day at $94.25 per share – more than doubling in value and creating some billionaires along the way.
The excitement around LinkedIn’s success has been met with a fair amount of skepticism from some quarters, where questions are being raised as to the longer term prospects, and the valuation, of the site. The closing price on the first day of trade pushed its market capitalization to $9.1 billion, being 592 times it $15.4 million earnings, and 37.5 times its $243 million revenue recorded in 2010. Although understandably pleased with LinkedIn’s debut on Wall Street, the company’s CEO Jeffrey Weiner was reported as saying that this performance is not necessarily indicative of anything and that the management team will continue focusing on getting fundamentals and long-term plans right.
Stock market analysts have questioned the ability of underwriters to accurately price IPOs in the uncharted territory of social media. The general opinion prior to the first day of trade was that an IPO share price of $45 was already quite high, so market activity pushing the price to an intra-day high of $122.70 came as a surprise to most, if not all, parties involved.
With LinkedIn’s IPO providing an indication of what may lie ahead for other social media sites, it’s been reported that this high-tech sector is receiving a lot of attention from venture capitalists and seasoned investors. While none of the targeted companies – FaceBook, Groupon, Twitter and Zynga – have registered to go public as yet, those in the know are hoping this will happen within the next year or so. LinkedIn’s performance in the coming months will no doubt play a significant role in the decision making process for these sites.