Just after 7 a.m. this morning on its first day of trading, LinkedIn‘s stocked soared up $47 to 92.99 dollars a share. Currently it is around $90 a share up 45 points. I’ve spent the bulk of the morning on the phone with reporters and radio hosts explaining why the the success of LinkedIn’s IPO is not surprising, and here is why.
If you recall, during the internet startup IPO bubble companies IPO’d on hype not actual value. This model was not sustainable because many companies who IPO’d had no real market differentiator and most importantly no defensible strategy.
LinkedIn is a mature business with a mature business model and vested customers. LinkedIn has three primary revenue sources, and job placement and lead generation are among the most reliable. Their customers are mostly business professionals who understand the value of a business social network and will most likely be loyal LinkedIn users.
The stock market has been looking and waiting for Silicon Valley startups with not only solid revenues but a defensible strategy and competitive advantage. It should not surprise when a business that has strong fundamentals does well as an IPO.
The interesting question, however, is what does this do for Facebook and possibly Twitter, two current Silicon Valley darlings.
My answer is it does more for Facebook than for Twitter. However, both companies need to use LinkedIn and other business that have successfully IPO’d in the past few years as a model.
Both Facebook and Twitter have a large customer base. But large customer bases alone don’t equate to Wall St. value. Look at how fast the world crumbled for MySpace. The same could easily happen to Facebook and Twitter if they don’t continue to innovate and keep customers loyal and, more importantly, vested.
This is why I think if we look at LinkedIn’s core business model and customer base it is much more similar in value to Facebook than to Twitter. The only difference is that LinkedIn has a niche audience, meaning business professionals, where Facebook has those but a wider general mass market audience too.
Both Facebook and Twitter still need to prove they can generate continued revenue growth with sound and defensible business models. Twitter most importantly, and I am the most skeptical of Twitter’s long term value. Primarily because I don’t see them having that defensible competitive advantage.
Get the fundamentals of your business solid. Create sustainable and growing revenue strategies. Create loyal and vested customers and continue to engage in defensible strategies through innovation.
If Facebook and Twitter can establish solid business fundamentals then they may very well be the next to IPO, and we should expect similar results. This is not a sign of another tech bubble, only one that shows us a template of how solid business can IPO and create value for investors.