LinkedIn’s rapid 14-year growth led to $26.2bn Microsoft deal

Linkedin Chocolates

It took just 14 years for LinkedIn to grow from a brainwave in a tech entrepreneur’s living room to a $26.2bn (£18.5bn) takeover target.

Reid Hoffman, 48, hatched the idea for LinkedIn from his apartment in December 2002 - shortly after eBay bought online payment service PayPal, where he was CEO.

Prior to joining PayPal as its main troubleshooter, Hoffman had been an early pioneer of social networks after launching SocialNet in the late 1990s. SocialNet allowed people to meet each other online using pseudonyms but Hoffman’s successor idea - LinkedIn - brought professionals face-to-face in the online marketplace.

Hoffman’s new site, which aimed to let people build a professional online network and launched with help from former SocialNet colleagues, went live in 2003.

LinkedIn lets people post a professional profile and establish business contacts. Most users do not pay for the service but the company earns revenue by charging premium subscriptions to recruiters and businesses.

Hoffman was an early investor in Facebook in 2005 but he believed people would want a separate site to manage their professional lives and persevered with LinkedIn.

He was LinkedIn’s chief executive for four years before becoming chairman. Jeff Weiner, a former Yahoo executive, is chief executive.

The company attracted capital from venture capital investors, starting in 2003 when Sequoia Capital took a stake. In 2008 Sequoia and other firms bought 5% for $53m, valuing LinkedIn at about $1bn.

LinkedIn grew rapidly as the popularity of online networks increased in the noughties. The company floated on the New York stock exchange in 2011, valuing it at $4.3bn. Investors overlooked its regular losses in the hope of future returns from the trove of users and professional data that LinkedIn had amassed.

Its shares more than doubled on the first day of trading as investors, hungry for the latest tech and digital media sucess story, appeared to banish all memory of the 2000 dotcom crash.

LinkedIn has continued to attract members, growing from about 100 million when it floated, to more than 433 million in 200 countries now. The company, based in Mountain View, California, next to Google’s base, has expanded rapidly outside the US, buying companies and hiring staff.

Last year, LinkedIn’s revenues were almost $3bn but it recorded a net loss of $166m. Most of its income is from the “talent solutions” division, which charges recruiters to advertise jobs and use the company’s data.

But LinkedIn’s rise has not been entirely smooth. The company’s shares plunged by more than 40% on a single day in February, wiping out $11bn of market value after its revenue forecast fell well short of expectations. The fall was the shares’ worst day since the flotation.

More than 30 brokers downgraded their forecasts after LinkedIn said online ad revenue growth slowed to 20% in the fourth quarter of 2015 from 56% a year earlier. The reaction was accentuated by a gloomy US jobs report.

Before Microsoft’s acquisition was announced, LinkedIn shares were $131, almost three times their $45 value at flotation, but down from a peak of $269 in February 2015.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for theguardian.com on Monday 13th June 2016 17.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts