As my DailyFinance colleague Dawn Kawamoto reported, LinkedIn (LNKD) made its initial public offering (IPO) Thursday. And like that, it transitioned from a privately-held company whose ownership was limited to the wealthy, the well-connected and the insiders, into one in which regular people can invest.

At least, theoretically we can. But in reality, that's pretty hard to do for two reasons. First, demand for a piece of the pie was so high during that first day that less than 5% of people who tried to buy shares were able to get as many as they wanted, according to The New York Times. Secondly, because of that incredible demand, the stock is unexpectedly expensive, closing yesterday at $94.25 per share after a high of $122.70 earlier in the day. Even the company executives were surprised by the high numbers. They'd priced the shares to start at $45.

In late afternoon trading Friday, the stock was selling near $93, which still sounds expensive to me. It also makes me wonder: With IPOs occurring fairly regularly on Wall Street again, why all the fuss about this one? What's so irresistible about an 8-year-old Internet company that sells advertising and social networking -- and actually lost money in both 2008 and 2009?

Those in the enthusiastic "buy" camp would reply LinkedIn is a new type of Internet company. Unlike all those tech companies that boomed -- and then busted -- during the Internet bubble of the late 1990s, LinkedIn doesn't just make money by forcing its users to look at ads. The company also generates income by charging recruiters and subscribers for networking services that brought in $15.4 million in profits for the company last year.

Waiting for the Next Wave of Internet IPOs


That LinkedIn does more than sell ad space is important because advertisers can be incredibly fickle. One minute they want nothing more than to place jingles and banners on your website. The next, they're taking their business elsewhere.


People are also excited about LinkedIn simply because there aren't that many publicly-traded Internet companies out there anymore after the industry's spectacular collapse in 2000. Hungry investors who have been sitting on their hands, waiting to put some money into the tech sector, are thrilled at the chance. The general consensus is that if the company has made it this long in such a saturated, competitive field, there must be something to it.

Plus, LinkedIn cleverly kept supply low. They offered 7.84 million shares for sale, which sounds like a lot but is actually less than 10% of the company. Relative rarity is making the stock that much more appealing.

So, is it worth all the hype? That depends. Clearly, the fact that shares are trading for more than twice the anticipated $45 indicates that a lot of people believe in the company's ability to make money.

But not everyone is on board. Trefis, a website that analyzes how a company's products affect its worth, values the shares at just $30. They argue that almost 50% of LinkedIn's business comes from charging companies for recruitment services, and that these revenues are likely to decline in the short-term because most large companies have already signed up for those services, forcing LinkedIn to turn to smaller companies that can't pay as much.
In any case, the fact that investors are going bonkers for this stock is probably a sign that their rekindled love affair with the tech market is just beginning. Word on the street is that some of the darlings of the Internet world, including Facebook and Groupon, will also launch their IPOs in the next 12 months. Those companies, too, could debut with seriously hype-driven prices, especially in the early going.

Loren Berlin is a columnist at DailyFinance.com. She can be reached at loren.berlin (at) teamaol.com. You can follow her on Twitter @LorenBerlin, or on Facebook.


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