Why LinkedIn won and Facebook lost

One initial public offering has been labeled a success, while the other has been tagged as a failure from the beginning.

By Wall St. Cheat Sheet Jun 5, 2012 6:49PM

When it comes to publicly traded social-media companies, two names dominate the conversation. Facebook (FB) and LinkedIn (LNKD) are social giants that are relatively new to public trading and already demand a heavy amount of attention. However, their stories could not be more different.

LinkedIn's initial public offering has been labeled a success on its resume, while Facebook's IPO has been tagged as a failure from the beginning.

What a difference a year can make. LinkedIn made its public trading debut on the New York Stock Exchange (NYX) in May 2011. In the first day of trading, shares more than doubled from $45 to $94.25. In comparison, Facebook’s IPO priced at $38 last month and by the end of its first trading day on the Nasdaq (QQQ), shares closed just 23 cents higher. After only two weeks of trading, Facebook shares fell nearly 30%. It was the worst two week performance following an IPO since 1995.

There are many reasons for Facebook’s dismal trading performance so far, including lawsuits over analyst warnings, slowing earnings, an uncertain mobile strategy, Nasdaq trading errors and simply an overvaluation of the company. CEO Mark Zuckerberg even said in a regulatory filing that Facebook "was not originally created to be a company. It was built to accomplish a social mission, to make the world more open and connected." LinkedIn, on the other hand, is all about taking care of business.

In a recent interview at the AllThingsD conference, LinkedIn CEO Jeff Weiner laid out a clear case on how his social network is different from others. "LinkedIn is not about passing time," he said. "It’s about enabling our members to save time, it’s about productivity."

LinkedIn, which has 161 million members in more than 200 countries, receives the largest share of its revenue from hiring solutions. The company seeks to transform the way businesses hire, market and sell. At the end of the first quarter, LinkedIn counted executives from all 2011 Fortune 500 companies as members and its corporate hiring solutions are used by 82 of the Fortune 100 companies. More than 2 million companies have LinkedIn company pages. The California company also receives revenue from marketing solutions and premium subscriptions.

In contrast, Facebook, which boasts 900 million users, receives the majority of its revenue from advertising. This strategy has come under fire recently with General Motors (GM) pulling ads and Facebook even admitting that it is having trouble generating revenue from mobile devices. Instead of mobile hindering its business, LinkedIn has been able to enhance its operating model by embracing small-screen connectivity. The company has an Apple (AAPL) iPad and iPhone app that allows on-the-go access to its professional network and provides an everyday value proposition, according to Weiner.

Facebook has potential given its massive user base, but it is still unclear if the company can monetize users and provide significant shareholder value to new investors. Last month, Facebook started testing a new feature that allows the average user to pay to highlight specific status updates. However, this strategy is still in the early stages, and it seems unlikely that users will be willing to pay for a service that has traditionally been free and mainly used to waste time. While Facebook develops its strategy going forward, the stock continues to take a beating. Shares fell nearly 4% Tuesday to close at $25.87.

The downward move coincided with Bernstein Research launching coverage on the stock with an "underperform" rating and a $25 price target. According to Forbes, analyst Carlos Kirjner explains, "we believe there is material risk that over the next 12 months investors will question Facebook's ability to achieve our forecasted 2013 revenues as near-term revenue growth decelerates. While this deceleration may ultimately prove to be a temporary setback if, over time, Facebook manages to improve monetization of its inventory (both PC- and mobile-based) and maximize the value of social advertising, it will likely drive additional downside pressure on the stock beyond what is already reflected in our price target. Therefore, it is difficult to argue for owning the stock today."

Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.

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Jun 6, 2012 10:08AM

Why LinkedIn and not Facebook? Take a look at the settings, the environments - you know, the websites.


One is sensible and professional for a working adult with an interest in fostering employment and career opportunities.


The other is for those with unresolved puberty issues.

Jun 6, 2012 9:52AM
Facebook was designed to waste time therefore it is a waste of time.
Jun 6, 2012 9:24AM
Aren't the reasons for Facebook's debacle much simpler?  A so called "social network" designed by an anti-social person and dedicated to pseudo-social behavor, without a viable income stream, and used initially but quickly discarded as uncool and unfun by kids without an income stream, and now used mostly by their parents to track said kids and old "friends" from high school (who they actually care little about)... is/was a recipe for FAILURE.  No matter how many new apps and gadgets are launched over the next year (and these WILL be launched to lure investors) and no matter how readily they are able to attract ever-younger kids or even those still in the womb... FB, the stock, is worth in the range of $5-9 a share and not a penny more!  Be prepared to watch as this stock hits new all-time lows just about every week for the next 3-4 months.  The smart money has already dumped their shares (to you, seemingly) and at some point it will be tough to find a buyer dumb enough to pay more than a PE of 10-15 for your stock.  LOL 
Jun 6, 2012 12:04PM
Facebook high at 45, and start going down to 44, 43, 42, 41, 40, 39, 38, 37, 36, 35, 34, 33, 32, 31, 29, 28, 27, 26, 25, toward number 13, where Facebook decides our children can join their social network. What do they want with our children personal information ?
Jun 6, 2012 10:06AM
Facebook somehow relate to number 13, a bad luck number, a scary number.  okay they ask for it,  Facebook stock price will drop down below that bad luck number.  Facebook now allow our children under 13 can join their social network.  What do they want from our children personal information ? this is really a Fake Book, no one will hold the Facebook stock for long.  it will drop down every day until the Facebook lawsuits are settled ,  do you remember on Friday May 18, 2012 the Facebook opening, the insider they all laughing Wow easy money :) , now wait and see their face reaction when be booked to jail because of fraud , that is the reason we call them Face Booked
Jun 6, 2012 2:13PM
FB is a fad website. It will eventaully fail as more ads and pay for use features are implimented to generate income. Time is ripe for the next social network to hit the web and steal users away from FB. There is nothing significant on FB that I can't quickly reproduce on a new network.
Jun 6, 2012 12:15PM
Ask yourself a question.  When Facebook stock price drop down to $25 range, why the Facebook won't buy back ?
Jun 6, 2012 10:53AM

"The point of a public offering is to raise as much money as possible for the issuing company, not the purchasers."


No, that's not the point.  The point is to strike a balance between raising money for issuers and creating a pop for public investors.  Companies don't float all their shares in an IPO.  Employees have lockup expiration dates and stock options tied to the shares.  If they suck the life out of everyone in an IPO with a high valuation followed by a big drop (IE: Facebook IPO), then it causes uncertainty among the workers.  Innovative employees will want to liquidate shares as soon as possible and other startups will start poaching talent.


Thus, you're flat wrong.  It's in the company's best interest to get good capital in the IPO, as well as solid share increases following the offering.

Jun 6, 2012 3:38PM
When one steps outside of either social media and views it openly and honestly for what it really is and for what it truly does, then, how one actually benefits from it, they begin to realize that niether of the social media outlets are truly accomplishing that much, outside of a big waste of time and energy.  Yet, while one is inside of either social media and "connecting", they tend to persuade themselves they are having fun, its very useful, and they are benefiting from being there and beng connected. The only actual advantage to LinkedIn over FB is that someone may actually be able to discuss some serious issues, primarily work related, but also social related. On FB, its all about what someone has and what they did or going to do, as though anyone really cares. Yet, there seems to be some competition among the members in that, because they spend a lot of time and energy posting all about themselves, as though the world really needs to know that stuff.     
Jun 6, 2012 3:20PM

I don't like the way linked in e-mails me about everyone I "Might know".  Meaning ever googled or have in my email contacts.


I also don't like that it automatically emails your email contacts.  It makes it annoying.

Jun 6, 2012 3:03PM
Linkedin is a specialized site and has more potential as a money maker than FB because they can offer services and ads related to job searches, everyone needs a job. FB is just shooting in the dark with ads hoping to hit a target.
Jun 6, 2012 2:27PM
It isn't about "taking care of business" or "making the world more open and connected".  Whether they realized it or not, Jeff created LinkedIn as a network of professional business and Zack created Facebook as a social media network for pleasure (or play).

They are two completely different things.  I believe Facebook can be a bigger success because (let's face it) - not everyone is in the professional business sector but we can all play, right?

However, the problem with Facebook is that it doesn't follow a real-world social model. In the real world, our conversation and words (according to our knowledge) is directed to a person or group of people. 

With Facebook today, our words and conversation (in fact, all of our "activity": things we choose to like, people we become friends with, etc) is actually BROADCAST to everyone. Finally, all of this data is stored in social media databases and is accessible to those privy to it for the sake of...marketing.

And therein lies the problem. Yes, we CAN configure Facebook to only notify us of our friends (or friends-of-friend) updates, prevent "friends of those tagged", or any other illogical social path between us and our intended audience - but to hold any real value (always work to build value into software), Facebook should do this for us automatically. The majority of he 900 million Facebook users do not care about this and probably don't notice the difference. But for the increasingly growing percent that are starting to care...it is what will eventually sink Facebook.  Unless they change their social network model.

900 million is a phenomenally large user base. I believe it can be done. Let's see if Zack can save Facebook's credibility before it's too late.
Jun 6, 2012 11:47PM
The real fun will be in September when the founders can dump the rest of their shares.  At that point it will REALLY tank!
Jun 6, 2012 11:00AM

Eventually people will come to their senses and stop beating up on Facebook.  It's not Apple, Google, or Microsoft, but it's still a solid company, at least for the time being.  The 900 million members are still going to visit, some of them dozens of times a day.  Advertisers are still going to be paying a premium for space. 


I don't know if Facebook is going to be strong five years from now.  Interest in the site is waning, and it's not where it was a year or two ago.  But Facebook is so enormous that it's not just going to fall apart overnight. 


I don't believe the stock price is undervalued yet, but with the rate that it's sliding, I'm nearly certain that it eventually will be.  I'll be keeping an eye out.

Jun 6, 2012 10:01AM
So LNKD is the big winner despite giving away HALF of their market value to outsiders? The point of a public offering is to raise as much money as possible for the issuing company, not the purchasers. In that regard LNKD failed miserably and FB was an outstanding success - they squeezed as much gain out of the flotation as possible.
Jun 6, 2012 1:09PM
Facebook's IPO was a success for Facebook -- they sold all their shares and raised $16 billion in
capital.  LinkedIn's IPO was priced wrong -- the whole point is to raise capital.  LinkedIn's underwriters grossly undervalued the stock -- LinkedIn could have raised far more capital as evidenced by the doubling up of value in one day.

Facebook's IPO was a failure for the underwriters because they weren't able to do the pump and dump that LinkedIn's underwriters effectively did.

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