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.
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.
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.
"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.
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.
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.
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.
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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