x Abu Dhabi, UAESunday 23 July 2017

LinkedIn sparkles but may flatter to deceive

LinkedIn debuted on the New York Stock exchange last week, but is it worth the heady heights the share price has reached?

LinkedIn dazzled investors with its debut on the New York Stock Exchange, but are the company's shares really worth the hype?

The social media networking company launched its initial public offering (IPO) last week and its shares immediately soared more than 100 per cent.

At one point the stock was hovering at US$120 a share, which is about 160 per cent above the IPO offer of $45 a share. The company was briefly valued at more than $8 billion.

The price has settled to just below $100 but LinkedIn is still trading at a valuation of almost 300 times price to earnings.

The site has about 100 million members, and is popular worldwide. It undoubtedly has potential but the issue is whether the business model justifies the steep valuation.

Concerns have been raised that LinkedIn's heady rise was reminiscent of the late 1990s dot-com bubble.

The company does have a revenue model and it is growing rapidly. It allows users to create free profiles or pay a subscription fee for a premium account with special features, and it also makes money charging businesses and recruiters who use it for hiring staff.

LinkedIn has benefited from investors' infatuation with social media.

The social buying site Groupon raised $1bn from investors in January and is reported to be considering an offering that could value the company at $20bn. Facebook is also widely expected to go public next year.

But media analysts have said a revenue model that partly relies on advertising exposes LinkedIn to heavy online competition. The company also seems to have some of the characteristics online users find annoying. As one media analyst at a New York investment bank put it: "Policing is a problem - you get approached from [recruiters] constantly and they bug you with stuff that's not necessarily relevant."

That's a sure way to lose core users, not gain the millions more a multibillion-dollar valuation assumes the site will attract.

fhalime@thenational.ae