How LinkedIn’s IPO left $300 million on the table

As my colleague Lee Simmons pointed out yesterday, LinkedIn went public on Thursday raising a little over $350 million dollars in their IPO. Not a bad amount for a company that had over $240 million in revenues for 2010.  However, the story here should be how LinkedIn got left out of nearly $300 million! Yes, $300 million, that’s how much was left on the table after the company’s stock initially opened at an eye popping $83 per share. 

What does “left on the table” mean? Companies hire underwriters to bring their stock to market. It’s the underwriter’s job to set the price of their client’s stock. They set the price by valuing the company as a whole and gauging interest in the investment community for that stock. LinkedIn priced 7.84 million shares at $45 per share for a total of $352 million. Now, had LinkedIn priced at $83 per share they would have received $650 million!

This means LinkedIn let almost $300 million slip through its fingers. That would have been more than enough money for the California-based company to cover Arnold Schwarzenegger’s upcoming legal fees — maybe. That’s the amount of some ten countries’ GDP. (Granted the countries include Micronesia, Cook and Marshall Islands, and Palau, but you get my point.) It’s a lot of dough. 

Lead underwriters Morgan Stanley and Merrill Lynch terribly misjudged the demand for LinkedIn’s stock, leaving LinkedIn light in the wallet, to put it mildly. But Morgan Stanley and Merrill Lynch are two of the most reputable firms in the investment world. How could they have left LinkedIn out of this much money? That’s tough to answer, but the underwriters did raise the price of LinkedIn’s stock two days before the IPO from a range of $32-$35 to $42-$45, so they did sense interest was going up, but obviously that wasn’t enough. I believe the underwriters in this case misjudged the overall value of the company, the overall interest in the investment community, and the social media industry as a whole.

But let’s not feel that bad for LinkedIn; they are now worth over $8 billion and plan to use the money they raised from the IPO for investing in their Hiring Solutions portfolio, acquisitions, and expanding in Europe. It’s just tough to see the company lose out on that amount of money. A quarter billion dollars can buy a whole bunch of tickets to Disneyland.

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Photo by Nick Ares, used under a CC-Share Alike license.
Anthony Staats

Anthony Staats has been an editor with Hoover’s for over a decade. He debuted as a financial editor and has served in a variety of roles since. When he’s not busy covering IPOs, he can be found hacking and slicing away on a local golf course or following his beloved Yankees!

Read more articles by Anthony Staats.

Comments

  1. Catherine says:

    Thank you for the explanation, Tony! Perhaps the underwriters for Facebook’s speculated 2012 IPO will consider this when it sits down to price Facebook?

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