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1/28/2011
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LinkedIn IPO Valuation Projected To Be $2 Billion

The professional social networking site nearly quadrupled revenue from 2007 to 2009, but expects a slowdown in 2011 as it invests for growth, according to the company’s SEC filing.

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LinkedIn on Thursday filed a prospectus for an initial public offering, a move that both kick-starts the long-awaited social media IPO frenzy and is expected to value the business social networking site at $2 billion.

Facebook, Groupon, Zynga, Twitter, and Foursquare, among others, are all widely rumored to be considering IPOs.

In its S-1 filing, LinkedIn disclosed it generated revenue of $161.4 million for the nine months ended Sept. 30, 2010, more than double the $80.8 million it earned in the year-ago timeframe. The company earned $10 million in net income in those nine months, vs. a $3.4 million loss in the prior period, the disclosure form said.

The book-running managers of the proposed offering will be Morgan Stanley, BofA Merrill Lynch, and J.P. Morgan Securities. Allen & Company and UBS Securities will be co-managers, said Steve Sordello, LinkedIn's chief financial officer, in a company blog. The number of shares and the price range have not yet been determined, nor has LinkedIn decided on which exchange its stocks will be listed.

Reid Hoffman -- a former PayPal executive and an angel investor -- is the largest shareholder, owning 21.4% of the firm he founded. Other key investors include Sequoia Capital, which has an 18.9% stake; Greylock Partners, which owns 15.8%; and Bessemer Venture Partners, with 5.1% ownership, according to the documentation.

LinkedIn does not expect such a rosy financial picture this year as the company invests extensively in product development, capital expenditures, and sales hiring as part of its focus on long-term growth, it said.

"From 2007 to 2009, our net revenue grew from $32.5 million to $120.1 million, which represents a compounded annual growth rate of approximately 92%. We expect that, in the future, our revenue growth rate will decline, and we may not be able to generate sufficient revenue to sustain our profitability." the filing said. "We also expect our costs to increase in future periods, which could negatively affect our future operating results. In particular, in 2011, our philosophy is to continue to invest for future growth, and as a result we do not expect to be profitable on a GAAP basis in 2011."

LinkedIn's Hiring Solutions services for job recruiters generate 41% of revenue. Income from this segment grew dramatically, reaching $65.9 million in the nine months ended Sept. 30, 2010, from $23.8 million in the year-ago period.

The company's advertising services, called Marketing Solutions, accounted for 32% of revenue. On Wednesday, the business-oriented social media site unveiled LinkedIn Ads, a self-service, pay-per-click advertising service that lets advertisers target participants by job title, company name, or LinkedIn group.

The remaining 27% of the business' revenue comes from Premium Subscriptions. Although many users opt only to tap LinkedIn's free offerings, the company provides additional services to those who pay a subscription. The Business Plus plan, which costs $49.95 per month, and the Executive plan, at $99.95 a month, deliver more services such as expanded searches, enhanced customer service, and more extensive profile views.

"We have a short operating history in a new and unproven market that may not develop as expected, if at all. This short operating history makes it difficult to effectively assess our future prospects. You should consider our business and prospects in light of the risks and difficulties we encounter in this rapidly evolving market," LinkedIn acknowledged, in a section on a risk factors.

"Further, a substantial majority of our members do not visit our Web site on a monthly basis, and a substantial majority of our page views are generated by a minority of our members," the filing said.

The company's difficulties include engaging customers; avoiding network disruptions; successfully competing with other businesses in this space; processing, storing, and using personal data in compliance with governmental regulation and other legal obligations related to privacy; developing a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased member usage globally; and deploying new features and products, it said.

LinkedIn has more than 90 million members, according to the company. In 2009, it had 55 million. However, not all members are active, and some may have multiple accounts, it said.

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