Friends may be nice, but money may better -- at least when you're talking about as much as $315.6 million. That's the maximum LinkedIn expects to raise in its upcoming initial public offering of common stock, according to an amended S-1 registration statement.
The popular professional networking site, which championed the concept "relationships matter," hopes to link up with a new network of investors. The company announced today that it plans to sell 7.84 million shares at an estimated price range of $32 to $35 apiece. Morgan Stanley, BofA Merrill Lynch, and J.P. Morgan Securities, the lead underwriters, have the right to purchase up to 1.176 million addition shares to cover over-allotments.
Including those additional shares, the IPO (NYSE: LNKD) could generate as much as $315.6 million before fees. Even at the midpoint of the expected share range, the IPO could generate up to $183.2 million.
Any way you look at it, it's a lot of cash for an eight-year-old company that was profitable for the first time just last year and expects to end 2011 in the red. It's even more staggering since all the shares sold during the IPO will have a combined voting power of less than 1%.
After the IPO, LinkedIn will have two classes of common stock, A and B. Each share of Class A stock will get one vote. Each share of Class B common stock will get 10 votes. Two classes of stock, with different voting rights, is not unusual.
But in this case, the Class B stock will represent approximately 99.1% of the voting power of all of the LinkedIn shares. Co-founder and board chairman Reid Hoffman will maintain much of that control, the S-1 notes.
Hoffman conceived LinkedIn in his living room in 2002. He and four co-founders -- Allen Blue, Jean-Luc Vaillant, Eric Ly, and Konstantin Guericke -- launched the site in May 2003.
He and his wife, Michelle Yee, own 21.2% of the company. After the IPO, their ownership stake will drop to 20.1%. But because they hold Class B shares, they'll control 21.7% of the vote.
Other leading shareholders will benefit from the two classes of stock, too, including venture capital firms Sequoia Capital, which will go from 18.9% now to 19.3% voting power; Greylock Partners (15.6% to 16.1%) and Bessemer Venture Partners (5.1% to 5.2%). CEO Jeffrey Winer and CFO Steven Sordello, who own 4.5% and 1% of the company, respectively, will retain similar voting power after the IPO.
The SEC filing acknowledges the dual-class structure of the common stock has the effect of concentrating voting control with those stockholders who held the company's stock before the IPO. It identifies that fact as one of several "risks and uncertainties" for potential investors.
Other potential concerns include the company's short operating history "in a new and unproven market," potential security concerns from hackers, and the continual need to expand its technology to meet the higher demands of more members. The company also explains it has more registered members than regular users and notes, "a substantial majority of our page views are generated by a minority of our members."
There's no doubt that LinkedIn has had a good year. For the quarter that ended March 31, LinkedIn reported net revenue climbed $49.2 million or 110% to $93.9 million from the same period a year ago. It has three main revenue lines: hiring solutions, marketing solutions, and premium subscriptions. It makes most of its revenue from hiring solutions, which generated $46 million in revenue in the quarter. That was up 174% from the same period a year ago.
LinkedIn has 102 million registered users in 200 countries as of March 31, up from 55.1 million in 2009. During the first three months this year, it had an average of 75 million unique visitors and 7.1 billion pageviews.
That's all good. But the Website is also facing increasing competition. That means it will have to invest in technology and remain innovative to stay a step ahead. It already expects to end 2011 with a loss, based on slower revenue growth and increased capital investment.
So is getting in on the IPO a good deal? Not necessarily, according to members discussing the idea on LinkedIn. Bryan C. Webb, president and CEO of Norton Scientific Inc., said he'd only invest if shares were offered at a 25% discount from the IPO price. And Erica Friedman, a social media optimizer and Internet publisher, said flatly, "Nope. Communities have lifecycles, just like anything else. Look at MySpace. What would its stock be worth? How about Second Life?"
Analysts are somewhat more upbeat. Rory Maher, senior analyst at Hudson Square Research, told Investor Uprising the LinkedIn IPO could be a bellwether for other social networking sites, including Facebook. "It's a good time for the site to go public," he said. "And there's nothing about the offering that jumps out at me as a negative."
But Jim Breyer of Accel Partners said in a January interview with Bloomberg Television that the offering could be slightly premature. "The advice we give to our CEOs is take time, remain private as long as you can, build the business, build the profitability, and most importantly keep the product passion that is the definition of all the great companies out there."