Why LinkedIn Will Go for an IPO While Facebook Takes Its Time (SEC Willing)
LinkedIn will reportedly file an IPO this year, according to Reuters. The company didn't offer anything beyond saying that an "IPO is just one of many tactics that we could consider," which is about as obvious and predictable a statement as you can get in business.
But have no doubt, an IPO has been on the minds of the management team and investors for some time. Not only do they want to cash out some of their holdings and walk away with a fat check, but they also need a hefty bank account for future expansion in the face of powerful competitors. A 2010 private investment suggested a $2 billion valuation.
And yet, why would LinkedIn go the IPO route while Facebook takes a hefty private placement from Goldman Sachs (GS) and the financial firm's best customers? Because Facebook wants to keep things under wraps as long as possible and has become strong enough -- both in perception and reality -- that it can do things the way it, CEO Mark Zuckerberg, and its powerful investors want, barring some SEC inquiry.
Companies in general have been slow recently to file for IPOs because of the market's weakness. Why take the plunge if you might get even richer by waiting a while longer? LinkedIn is well positioned for an IPO. Not only is the company in the hot social networking sector, but it claims to have been profitable since 2007. (Of course, as Demand Media has demonstrated, pre-IPO-filing claims of profitability may be nothing more than unsubstantiated hype.) Estimated 2010 revenue is $200 million, and the company claims to have 85 million members.
Compare LinkedIn to Facebook, which has estimated revenue of between $1 billion and $2 billion and hundreds of millions of users. Furthermore, Facebook is having some success in becoming the Internet's default sign-in technology. Don't have an account on a site? Go ahead and use your Facebook login. Press a Facebook "like" button in many places on the Web. And the company is snapping up all sorts of information about consumers through its extended social graph that other Web sites also use.
Facebook has become a company so potentially powerful -- and, more importantly, is also perceived as such -- that many people want a piece of it and the expected privileges that stock ownership brings. That's why Goldman Sachs and others will trip over themselves to do whatever the company wants. They all badly want to friend Facebook. And as solid as LinkedIn's prospects seem to be, it is not in the same category.
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