S-1/A 1 ds1a.htm AMENDMENT NO. 1 TO FORM S-1 Amendment No. 1 to form S-1
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As filed with the Securities and Exchange Commission on March 11, 2011

Registration No. 333-171903

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

 

LinkedIn Corporation

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7370  

47-0912023

(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer
Identification Number)

 

2029 Stierlin Court

Mountain View, CA 94043

(650) 687-3600

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

Jeffrey Weiner

Chief Executive Officer

LinkedIn Corporation

2029 Stierlin Court

Mountain View, CA 94043

(650) 687-3600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

   Copies to:   

Jeffrey D. Saper, Esq.

Katharine A. Martin, Esq.

Jon C. Avina, Esq.

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

  

Erika Rottenberg, Esq.

Lora D. Blum, Esq.

LinkedIn Corporation

2029 Stierlin Court

Mountain View, CA 94043

(650) 687-3600

  

Eric C. Jensen, Esq.

John T. McKenna, Esq.

Cooley LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA 94304

(650) 843-5000

 

 

 

Approximate date of commencement of the proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨

    Accelerated filer  ¨

Non-accelerated filer  x

  (Do not check if a smaller reporting company)   Smaller reporting company  ¨

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we and the selling stockholders are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued March 11, 2011

 

             Shares

 

LOGO

 

Class A Common Stock

 

 

 

LinkedIn Corporation is offering              shares of its Class A common stock and the selling stockholders are offering              shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares of Class A common stock. We anticipate that the initial public offering price will be between $             and $             per share.

 

 

 

Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting and conversion. Each share of Class A common stock will be entitled to one vote per share. Each share of Class B common stock will be entitled to ten votes per share and will be convertible at any time into one share of Class A common stock.

 

 

 

We will apply to list our Class A common stock on the Nasdaq Global Market or the New York Stock Exchange under the symbol “            .”

 

 

 

Investing in our Class  A common stock involves risks. See “Risk Factors” beginning on page 13.

 

 

 

PRICE $             A SHARE

 

 

 

      

Price to
Public

    

Underwriting
Discounts and
Commissions

    

Proceeds to
LinkedIn

    

Proceeds to
Selling
Stockholders

Per Share

     $               $               $               $         

Total

     $                          $                          $                          $                    

 

We and the selling stockholders have granted the underwriters the right to purchase up to an additional              shares of Class A common stock to cover over-allotments.

 

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the shares of Class A common stock to purchasers on                     , 2011.

 

 

 

MORGAN STANLEY   BofA MERRILL LYNCH   J.P. MORGAN
ALLEN & COMPANY LLC                     UBS INVESTMENT BANK

 

                    , 2011


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TABLE OF CONTENTS

 

 

 

     Page  

Prospectus Summary

     1   

Risk Factors

     13   

Special Note Regarding Forward-Looking Statements

     33   

Use of Proceeds

     35   

Dividend Policy

     35   

Capitalization

     36   

Dilution

     38   

Selected Consolidated Financial Data

     40   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     44   

Business

     70   

Management

     87   

Executive Compensation

    
94
  

Certain Relationships and Related Person Transactions

     110   

Principal and Selling Stockholders

     114   

Description of Capital Stock

     118   

Shares Eligible For Future Sale

     125   

Material United States Federal Income Tax Consequences to Non-U.S. Holders of Our Class A Common Stock

     127   

Underwriting

     130   

Legal Matters

     134   

Experts

     134   

Where You Can Find More Information

     134   

Index to Consolidated Financial Statements

     F-1   

 

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We and the selling stockholders are offering to sell, and seeking offers to buy, our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or of any sale of our Class A common stock.

 

Through and including                    , 2011 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

For investors outside the United States: Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

 

The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

LINKEDIN CORPORATION

 

We are the world’s largest professional network on the Internet with more than 90 million members in over 200 countries and territories. Through our proprietary platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful.

 

We believe we are the most extensive, accurate and accessible network focused on professionals. We believe we are creating significant value for professionals, enterprises and professional organizations worldwide by connecting talent with opportunity at massive scale. We believe that our members and the enterprises and professional organizations that use our platform are only beginning to leverage the power and potential of our network and its underlying database of professional information.

 

Our comprehensive platform provides members with solutions, including applications and tools, to search, connect and communicate with business contacts, learn about attractive career opportunities, join industry groups, research organizations and share information. At the core of our platform are our members, who create profiles that serve as their professional profiles and are accessible by any other member, as well as (unless a member chooses otherwise) anyone with an Internet connection. We believe that our platform allows our members to compete more effectively, make better decisions faster and manage their careers to achieve their full potential.

 

The cornerstone of our business strategy is to focus on our members first. We provide the majority of our solutions to our members at no cost. We believe this approach provides the best way to continue to build a critical mass of members, resulting in beneficial network effects that promote greater utilization of our solutions, higher levels of engagement and increased value for all of our members.

 

We provide enterprises and professional organizations of all sizes with solutions designed to identify specific talent within our global network, enable their employees to be more productive and successful, build brand awareness, and market their products and services. Enterprises and professional organizations that use our solutions include large corporations, small- and medium-sized businesses, educational institutions, government agencies, non-profit organizations and other similar entities. Our current products for enterprises and professional organizations include hiring solutions, marketing solutions and premium subscriptions. Our hiring solutions are transforming the talent acquisition market by providing unique access not only to active job seekers but also to passive candidates who are not actively looking to change jobs. Our marketing solutions enable enterprises to reach a large audience of influential and affluent professionals and connect them to relevant products and services.

 

We generate revenue from enterprises and professional organizations by selling our hiring solutions and marketing solutions offline through our field sales organization or online on our website. We also generate revenue from members, acting as individuals or on behalf of their enterprise or professional organization, who

 

 

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subscribe to our premium services. We strive to ensure that our hiring solutions, marketing solutions and premium subscriptions provide both a high level of value for our customers and also a high degree of relevance for our members. We believe this monetization strategy properly aligns objectives among members, customers and our entire network and supports our financial objective of sustainable revenue and earnings growth over the long term.

 

We have achieved significant growth as our network has scaled and as we have expanded our product offerings. From 2009 to 2010, net revenue increased $123.0 million, or 102%, net income increased $19.4 million, or 487%, and adjusted EBITDA increased $33.3 million, or 227%. See “Adjusted EBITDA” below for a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss).

 

Our Mission

 

Our mission is to connect the world’s professionals to make them more productive and successful. Our members come first. We believe that prioritizing the needs of our members is the most effective, and ultimately the most profitable, way to accomplish our mission and to create long-term value for all of our stakeholders. We will continue to concentrate on opportunities we believe are in the best interests of our members. Our long-term approach enables us to invest, innovate and pioneer in unexplored segments of our industry to increase the value proposition of our proprietary platform and extensive data.

 

Our solutions are designed to enable professionals to achieve higher levels of performance and professional success and enable enterprises and professional organizations to find and connect with the world’s best talent.

 

Our Vision

 

Our vision is to create economic opportunity for every professional in the world. This vision not only applies to each of our employees, but every LinkedIn member, each of whom has the ability to create economic opportunities for others. We believe this is the fundamental power of our network.

 

Our Opportunity

 

We believe we are transforming the way people work by connecting talent with opportunity at massive scale. Our goal is to provide a global platform capable of mapping every professional’s experience, skills and other relevant professional data to his or her professional graph, including connections with colleagues and business contacts.

 

We provide the following key benefits to our members:

 

   

Ability to Manage Their Professional Identity. Through online professional profiles of record that members create, manage and control, we are reshaping how members present their professional identity. Our members share, at their own discretion, information about themselves in their profiles, and this data is available, accessible and searchable online. The accuracy of our members’ public profile information combined with our search engine optimization technology often enables their professional profiles to appear at or near the top of search engine results, increasing the awareness of our members’ professional identities.

 

   

Enhanced Ability to Build and Engage with Their Professional Network. We enable members to build their professional networks by linking their professional profiles with those of others to whom they are directly and indirectly connected, creating an ever-expanding professional graph. In this manner, members use our platform to engage with other members whom they trust and value and reach people who are not known to them but who are known and trusted by others within their professional

 

 

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network. Through access to rich, up-to-date profile and professional graph data, members can make better use of their existing and new connections.

 

   

Access to Knowledge, Insights and Opportunities. We believe we are a trusted source for comprehensive and rich, real-time news, opinions and other professional intelligence. Our proprietary platform provides solutions that enable our members to search and access insights and opportunities generated by our community of professionals, enterprises and professional organizations. The information and opportunities presented to each member are personalized based on his or her profile and professional graph, thereby providing our members with compelling and relevant information designed to make them more productive and successful.

 

In addition, enterprises and professional organizations also utilize our solutions to receive numerous benefits, such as attracting new talent and more fully understanding, retaining and engaging with their employees and other professionals. We provide the following key benefits to enterprises and professional organizations:

 

   

Matching Talent with Opportunity. With the world’s largest online professional network, we provide enterprises and professional organizations the ability to connect with the global professional talent pool at scale. Our extensive hiring solutions allow enterprises and professional organizations to leverage the insights from our platform to source and develop a pipeline of active and passive talent, including the ability to automate talent matching, post jobs, engage and educate candidates, streamline applications and validate information. We believe our solutions are both more cost-effective and more efficient than traditional recruiting approaches, such as hiring third-party search firms, to identify and screen candidates.

 

   

Efficient Marketing Channel. Through our marketing solutions, enterprises and professional organizations are able to create, promote and control their corporate identity and enhance their brand awareness. Our marketing solutions, including our self-service platform, allow enterprises and professional organizations to pursue business-to-business marketing, prosumer marketing and marketing to mass consumers. Marketers use our solutions to create an online brand and corporate identity, disseminate trade publications and collateral, engage in highly targeted marketing campaigns and gain rich customer insights, all at scale and on a cost-effective basis, which is particularly attractive to small- and medium-sized enterprises and professional organizations that have limited resources. Our proprietary platform is designed to leverage viral actions, social media, trusted recommendations and our rich user-generated data to efficiently connect members, enterprises and professional organizations to relevant products and services.

 

   

Targeted Advertising. Our member base constitutes one of the most influential, affluent and highly educated audiences on the web. According to The Nielsen Company @Plan data released in December 2010, U.S. visitors to our website represent more decision makers, have higher average household incomes and are comprised of more college or post graduates than U.S. visitors of many leading business websites. Our marketing solutions provide advertisers with the ability to target audiences based on our members’ profile information, including title, function, company name, company size, industry and geography. In addition, our detailed advertising campaign reports provide advertisers with insights to further maximize the return on their advertising budget.

 

   

Increase Employee Productivity. We serve as the central hub of a professional’s online network and a platform for enterprises and professional organizations to share knowledge and professional insights with their employees and thereby increase their productivity. For example, employees who are members are able to join groups for sharing information, articles, links, conversations and opinions. In addition, sales professionals who are members are able to accelerate their sales processes by accessing information to identify leads and decision-makers, request introductions to other members through a common connection and thereby increase their efficiency and potentially eliminate cold calls altogether.

 

 

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Our Competitive Strengths

 

We believe the following strengths provide us competitive advantages in realizing the potential of our opportunity:

 

   

Exclusive Focus on Professionals. As a result of our exclusive focus on professionals, we have built the world’s largest professional network on the Internet with over 90 million members. We have developed a strong brand as a trusted database for profile information and provider of applications and tools for professionals to more effectively present their professional identity online, build and engage with their professional network more efficiently, and access insights to be more productive and successful.

 

   

Large and Growing Global Member Base. Our member base continues to grow rapidly, adding approximately one new member every second, primarily through “word-of-mouth” and the network effects of our platform. While it took us nearly 500 days to reach our first one million members, during the second half of 2010, on average, we added more than a million new members every 10 days. Between 2008 and 2010, our member base increased at a 76% compounded annual growth rate. As of January 2011, over 50% of our members were from outside of the United States and our member base included executives from all of the companies in the 2010 Fortune 500.

 

   

Business Model with Powerful Network Effects. The size and growth of our member base, the number of enterprises and professional organizations that use our platform, and the amount of rich and accurate information generated by our members increase the value we deliver to all participants in our network. A larger member base provides more opportunities to form professional connections for members, as well as increased opportunities to identify and attract talent for enterprises and professional organizations. At the same time, an increasing number of enterprises and professional organizations accessing our network enhances the relevance for members who stand to benefit from professional insights and opportunities. We believe the breadth and depth of our network would be difficult to replicate and represents a significant competitive advantage.

 

   

Robust and Trusted Source of Relevant Professional Data. Our proprietary platform processes, filters and indexes a vast and growing amount of user-generated content, including updates to members’ professional profiles, connections, activities and recommendations. The more data our members choose to share, the more value they receive from the network. As a result, members are more willing to share accurate and detailed information about themselves. We use the information that flows through our platform to provide more relevant searches and information to enhance productivity. Since our formation, we have provided easy-to-use controls that enable our members to select what they would like to share with whom, and we believe we have been clear and consistent on how we use this information to the benefit of members, enterprises and professional organizations.

 

   

Large Customer Base. Thousands of enterprises and professional organizations use our hiring solutions and marketing solutions. In 2010, our hiring solutions were used by nearly 3,900 companies, including 69 of the Fortune 100. Our customers also include many small- and medium-sized businesses using our platform to leverage their limited recruiting resources. In 2010, our marketing solutions were used by more than 33,000 customers. This broad customer base provides us with not only diversification but also market validation for additional new customers.

 

   

Proprietary Technology Platform. Our proprietary software applications and technologies enable us to perform large scale real-time data and computational analyses that support our solutions. We categorize and query large sets of structured and unstructured data to personalize relevant information. For example, one of our key personalized recommendation features typically involves the processing of over 75 terabytes per day, and nearly two billion people searches were performed on our website in 2010.

 

 

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Our Key Metrics

 

Our number of registered members, the number of unique visitors to our website and the number of page views on our website have continued to grow over time. We believe this growth is primarily attributable to the network effects of our business model, the strength of our brand and the value of our solutions. For a description of how we calculate each of our key metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics.” The chart below highlights the growth in each of these areas since 2008:

 

LOGO

 

  (1)   The number of registered members is higher than the number of actual members due to various factors. For more information, see “Risk Factors—The number of our registered members is higher than the number of actual members, and a substantial majority of our page views are generated by a minority of our members.
  (2)   Worldwide data provided by comScore, a leading provider of digital marketing intelligence. Beginning in August 2009, comScore changed the method by which it counts traffic, which makes prior data not meaningful for period over period comparison purposes.

 

Our Strategy

 

Our mission is to connect the world’s professionals to make them more productive and successful. The key elements of our strategy are:

 

   

Foster Viral Member Growth. With over 90 million members, we will continue to pursue initiatives that promote the viral growth of our member base. These initiatives include registration optimization, enhanced search engine optimization, seamless integration with other applications and enhancements to our communications capabilities. Viral growth is a critical element in our mission to connect the world’s professionals.

 

   

Serve as the Professional Profile of Record. By maintaining the trust we have developed with our members and through continued improvements, such as enhancing our profile tools and search engine optimization, we seek to be the professional profile for every professional worldwide. Using our platform, any member can find, connect with and learn about other professionals.

 

   

Be the Essential Source of Professional Insights. As the amount of information being shared across the Internet continues to rapidly increase, we seek to be the essential source for relevant shared professional knowledge and data. Our platform enables members to easily contribute and share information at their discretion. We are uniquely positioned to continue to create more value from this information by providing relevant and timely business and career intelligence, insights and recommendations to our members, enabling them to be more productive and successful.

 

   

Work Wherever Our Members Work. We believe the value proposition of our network is most powerful when it is accessible wherever and whenever our members work. As a result, we plan to continue to grow our developer community by making our products and services available via open application programming interfaces, or APIs, and embeddable widgets to enable access to our solutions anywhere professionals work. In addition, we will continue to make our platform accessible on a large

 

 

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number of mobile and other Internet-connected devices to ensure members have constant access to our network.

 

   

Increase Monetization While Creating Value for Our Members. We intend to leverage our unique business model to further monetize our platform while adding value to members, enterprises and professional organizations on a global basis. For example, by providing our members with better tools to share their professional skills and insights, our hiring solutions can more efficiently and effectively identify specific active and passive candidates for a particular opportunity resulting in benefits for both members and customers. A core part of our strategy is making our solutions more relevant for our members and customers by significantly investing in targeting capabilities and analytics.

 

   

Expand Our International Presence. We have seen significant growth in our international member base and have established operations in Australia, Canada, India, Ireland, the Netherlands and the United Kingdom. We intend to expand our sales, technical and support operations in additional international locations and expand our international member base by making our platform available in more languages and further developing our brand across various international geographies.

 

Risks Associated with Our Business

 

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

 

   

we have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful;

 

   

we may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our website is accessible at all times with short or no perceptible load times;

 

   

if our security measures are compromised, or if our website is subject to attacks that degrade or deny the ability of members to access our solutions, members and customers may curtail or stop the use of our solutions;

 

   

our core value of putting our members first may conflict with the short-term interests of our business;

 

   

the number of our registered members is higher than the number of actual members, and a substantial majority of our page views are generated by a minority of our members;

 

   

we process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and changes in these regulations or our actual or perceived failure to comply with such obligations could harm our business;

 

   

we expect our revenue growth rate to decline, and as we continue to invest for future growth, we do not expect to be profitable on a GAAP basis in 2011;

 

   

we expect to face increasing competition in the market for online professional networks; and

 

   

the dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, as those stockholders will hold Class B common stock after this offering, which will be entitled to 10 votes per share, as opposed to the Class A common stock that we and the selling stockholders are offering, which will be entitled to one vote per share.

 

Corporate Information

 

We were incorporated in Delaware in March 2003 under the name LinkedIn, Ltd. and changed our name to LinkedIn Corporation in January 2005. Our principal executive offices are located at 2029 Stierlin Court,

 

 

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Mountain View, CA 94043, and our telephone number is (650) 687-3600. Our website address is www.linkedin.com. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only. Unless the context requires otherwise, the words “LinkedIn,” “we,” “company,” “us” and “our” refer to LinkedIn Corporation and our wholly owned subsidiaries.

 

LinkedIn, the LinkedIn logo and other trademarks or service marks of LinkedIn appearing in this prospectus are the property of LinkedIn. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders.

 

 

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THE OFFERING

 

Class A common stock offered

  

By us

                            shares

By the selling stockholders

                            shares

Total

                            shares

Class A common stock to be outstanding after this offering

                            shares

Class B common stock to be outstanding after this offering

                            shares

Total Class A and Class B common stock to be outstanding after this offering

                            shares
                            shares

 

Use of proceeds

We intend to use the net proceeds from this offering for working capital and general corporate purposes, including further expansion of our product development and field sales organizations, and for capital expenditures. In addition, we may use a portion of the proceeds from this offering for acquisitions of complementary businesses, technologies or other assets. We will not receive any of the proceeds from the sale of shares to be offered by the selling stockholders. See “Use of Proceeds” on page 35.

 

Risk factors

See “Risk Factors” beginning on page 13 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Proposed symbol

“            ”

 

The total number of shares of our Class A and Class B common stock outstanding after this offering is based on no shares of our Class A common stock and 88,955,943 shares of our Class B common stock (including preferred stock on an as converted basis) outstanding, as of December 31, 2010, and excludes, as of December 31, 2010:

 

   

15,202,015 shares of our Class B common stock issuable upon the exercise of outstanding options granted pursuant to our Amended and Restated 2003 Stock Incentive Plan at a weighted-average exercise price of $3.97 per share;

 

   

952,873 unallocated shares of our Class B common stock available for future issuance under our Amended and Restated 2003 Stock Incentive Plan; and

 

   

             additional shares of our Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2011 Equity Incentive Plan, which will become effective in connection with this offering.

 

Unless otherwise stated, information in this prospectus (except for the historical financial statements) assumes:

 

   

the reclassification of our common stock into an equivalent number of shares of our Class B common stock and the authorization of our Class A common stock;

 

 

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that our amended and restated certificate of incorporation, which we will file in connection with the completion of this offering, is in effect;

 

   

the automatic conversion of all shares of our outstanding preferred stock into an aggregate of 45,647,201 shares of our Class B common stock immediately prior to the completion of this offering; and

 

   

no exercise of the underwriters’ over-allotment option.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

The following tables summarize the consolidated financial data for our business. You should read this summary consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, all included elsewhere in this prospectus.

 

We derived the consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the consolidated balance sheet data as of December 31, 2009 and 2010, from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

     Year Ended December 31,  
             2008                  2009                  2010      
     (in thousands, except per share data)   

Consolidated Statements of Operations Data:

      

Net revenue

   $ 78,773      $ 120,127      $ 243,099   

Costs and expenses:

      

Cost of revenue (exclusive of depreciation and amortization shown separately below)

     18,589        25,857        44,826   

Sales and marketing

     16,986        26,847        58,978   

Product development

     29,366        39,444        65,104   

General and administrative

     12,976        19,480        35,064   

Depreciation and amortization

     6,365        11,854        19,551   
                        

Total costs and expenses

     84,282        123,482        223,523   
                        

Income (loss) from operations

     (5,509     (3,355     19,576   

Other income (expense), net

     1,277        230        (610
                        

Income (loss) before income taxes

     (4,232     (3,125     18,966   

Provision for income taxes

     290        848        3,581   
                        

Net income (loss)

   $ (4,522   $ (3,973   $ 15,385   
                        
      

Net income (loss) attributable to common stockholders

   $ (4,522   $ (3,973   $ 3,429   
                        

Net income (loss) per share attributable to common stockholders:

      

Basic

   $ (0.11   $ (0.10   $ 0.08   
                        

Diluted

   $ (0.11   $ (0.10   $ 0.07   
                        

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:

      

Basic

     42,389        41,184        42,446   
                        

Diluted

     42,389        41,184        46,459   
                        

Pro forma net income per share attributable to common stockholders(1) (unaudited):

      

Basic

       $ 0.17   
            

Diluted

       $ 0.17   
            

Pro forma weighted-average shares used to compute pro forma net income per share attributable to common stockholders(1) (unaudited):

      

Basic

         88,091   
            

Diluted

         92,104   
            

Other Financial and Operational Data:

      

Adjusted EBITDA (2)

   $ 5,461      $ 14,651      $ 47,959   
      

Number of registered members (at period end)

     32,307        55,111        90,437   
      

 

 

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  (1)   Pro forma net income (loss) per share has been calculated assuming the conversion of all outstanding shares of our preferred stock and common stock into 88,955,943 shares of our Class B common stock prior to the completion of this offering.
  (2)   We define adjusted EBITDA as net income (loss), plus: provision for income taxes, other income (expense), net, depreciation and amortization, and stock-based compensation. Please see “Adjusted EBITDA” below for more information and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.

 

Stock-based compensation included in the statements of operations data above was as follows:

 

     Year Ended December 31,  
     2008      2009      2010  
     (in thousands)  

Cost of revenue

   $ 298       $ 370       $ 439   

Sales and marketing

     513         657         1,225   

Product development

     1,214         2,346         3,248   

General and administrative

     2,580         2,779         3,920   
                          

Total stock-based compensation

   $ 4,605       $ 6,152       $ 8,832   
                          

 

     As of December 31,  
     2009      2010      Pro Forma  (1)      Pro Forma As
Adjusted  (2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

   $ 89,979       $ 92,951       $ 92,951       $               

Property and equipment, net

     25,730         56,743         56,743      

Working capital

     71,885         66,734         66,734      

Total assets

     148,559         238,188         238,188      

Redeemable convertible preferred stock

     87,981         87,981              

Convertible preferred stock

     15,413         15,846              

Total stockholders’ equity

     9,082         36,249         124,230      

 

  (1)   The pro forma column reflects the automatic conversion of all outstanding shares of our preferred stock and common stock into 88,955,943 shares of our Class B common stock prior to the completion of this offering.
  (2)   The pro forma as adjusted column reflects (i) the automatic conversion of all outstanding shares of our preferred stock and common stock into 88,955,943 shares of our Class B common stock, prior to the completion of this offering and (ii) the sale by us of              shares of our Class A common stock offered by this prospectus at an assumed initial public offering price of $              per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
  (3)   A $1.00 increase (decrease) in the assumed initial public offering price of $              per share would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of our Class A common stock offered by us would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $              million, assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

 

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Adjusted EBITDA

 

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

 

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

 

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

   

adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated:

 

 

     Year Ended December 31,  
     2008     2009     2010  
     (in thousands)  

Reconciliation of Adjusted EBITDA:

      

Net income (loss)

   $ (4,522   $ (3,973   $ 15,385   

Provision for income taxes

     290        848        3,581   

Other (income) expense, net

     (1,277     (230     610   

Depreciation and amortization

     6,365        11,854        19,551   

Stock-based compensation

     4,605        6,152        8,832   
                        

Adjusted EBITDA

   $ 5,461      $ 14,651      $ 47,959   
                        

 

 

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RISK FACTORS

 

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. If any of the following risks are realized, our business, operating results and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment.

 

Risks Related to Our Business

 

We have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

 

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. These risks and difficulties include our ability to, among other things:

 

   

increase our number of registered members and member engagement;

 

   

avoid interruptions or disruptions in our service or slower than expected website load times;

 

   

develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased member usage globally, as well as the deployment of new features and products;

 

   

responsibly use the data that our members share with us to provide solutions that make our members more successful and productive and that are critical to the hiring and marketing needs of enterprises and professional organizations;

 

   

increase revenue from the solutions we provide;

 

   

continue to earn and preserve our members’ trust with respect to their professional reputation and information;

 

   

process, store and use personal data in compliance with governmental regulation and other legal obligations related to privacy;

 

   

successfully compete with other companies that are currently in, or may in the future enter, the online professional network space;

 

   

hire, integrate and retain world class talent; and

 

   

successfully expand our business, especially internationally.

 

If the market for online professional networks does not develop as we expect, or if we fail to address the needs of this market, our business will be harmed. We may not be able to successfully address these risks and difficulties or others, including those described elsewhere in these risk factors. Failure to adequately address these risks and difficulties could harm our business and cause our operating results to suffer.

 

We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our website is accessible within an acceptable load time.

 

A key element to our continued growth is the ability of our members, users (whom we define as anyone who visits our website, regardless of whether or not they are a member), enterprises and professional organizations in all geographies to access our website within acceptable load times. We call this website performance. We have recently experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity

 

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constraints due to an overwhelming number of users accessing our website simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our website performance, especially during peak usage times and as our solutions become more complex and our user traffic increases. If our website is unavailable when users attempt to access it or does not load as quickly as they expect, users may seek other websites to obtain the information for which they are looking, and may not return to our website as often in the future, or at all. This would negatively impact our ability to attract members, enterprises and professional organizations and increase engagement on our website. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.

 

We recently implemented a disaster recovery program, which allows us to move production to a back-up data center in the event of a catastrophe. Although this program is functional, it does not yet provide a real-time back-up data center, so if our primary data center shuts down, there will be a period of time that the website will remain shut down while the transition to the back-up data center takes place.

 

Our systems are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks and similar events. Our U.S. corporate offices and certain of the facilities we lease to house our computer and telecommunications equipment are located in the San Francisco Bay Area and Southern California, both regions known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our hosting facilities could result in lengthy interruptions in our services.

 

We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our service as a result of system failures.

 

If our security measures are compromised, or if our website is subject to attacks that degrade or deny the ability of members or customers to access our solutions, members and customers may curtail or stop use of our solutions.

 

Our solutions involve the storage and transmission of members’ and customers’ information, some of which may be private, and security breaches could expose us to a risk of loss of this information, which could result in potential liability and litigation. Like all websites, our website is vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information. If we experience compromises to our security that result in website performance or availability problems, the complete shutdown of our website, or the loss or unauthorized disclosure of confidential information, our members or customers may lose trust and confidence in us, and decrease the use of our website or stop using our website in its entirety. Further, outside parties may attempt to fraudulently induce employees, members or customers to disclose sensitive information in order to gain access to our information or our members’ or customers’ information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new members and increase engagement by existing members, cause existing members to close their accounts or existing customers to cancel their contracts, subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our operating results.

 

 

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Our core value of putting our members first may conflict with the short-term interests of our business.

 

One of our core values is to make decisions based on the best interests of our members, which we believe is essential to our success in increasing our member growth rate and engagement and in serving the best, long-term interests of the company and our stockholders. Therefore, in the past, we have forgone, and may in the future forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of our members, even if our decision negatively impacts our operating results in the short term. In addition, as part of our philosophy of putting our members first, as long as our members are adhering to our terms of service, this philosophy may cause disagreements, or negatively impact our relationships, with our existing or prospective customers. This could result in enterprises and professional organizations blocking access to our website or refusing to purchase our hiring or marketing solutions or premium subscriptions. Our decisions may not result in the long-term benefits that we expect, in which case our member engagement, business and operating results could be harmed.

 

The number of our registered members is higher than the number of actual members, and a substantial majority of our page views are generated by a minority of our members.

 

The number of registered members in our network is higher than the number of actual members because some members have multiple registrations, other members have died or become incapacitated, and others may have registered under fictitious names. Given the challenges inherent in identifying these accounts, we do not have a reliable system to accurately identify the number of actual members, and thus we rely on the number of registered members as our measure of the size of our network. Further, a substantial majority of our members do not visit our website on a monthly basis, and a substantial majority of our page views are generated by a minority of our members. If the number of our actual members does not meet our expectations or we are unable to increase the breadth and frequency of our visiting members, then our business may not grow as fast as we expect, which will harm our operating and financial results and may cause our stock price to decline.

 

If our members’ profiles are out-of-date, inaccurate or lack the information that users and customers want to see, we may not be able to realize the full potential of our network, which could adversely impact the growth of our business.

 

If our members do not update their information or provide accurate and complete information when they join LinkedIn or do not establish sufficient connections, the value of our network may be negatively impacted because our value proposition as a professional network and as a source of accurate and comprehensive data will be weakened. For example, customers of our hiring solutions may not find members that meet their qualifications or may misidentify a candidate as having such qualifications, which could result in mismatches that erode customer confidence in our solutions. Similarly, incomplete or outdated member information would diminish the ability of our marketing solutions customers to reach their target audiences and our ability to provide our customers with valuable insights. Therefore, we must provide features and products that demonstrate the value of our network to our members and motivate them to contribute additional, timely and accurate information to their profile and our network. If we fail to successfully motivate our members to do so, our business and operating results could be adversely affected.

 

We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.

 

We receive, store and process personal information and other member data, and we enable our members to share their personal information with each other and with third parties. There are numerous federal, state and

 

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local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other member data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including voluntary third-party certification bodies such as TRUSTe). We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other member data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our members and customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws or our policies, such violations may also put our members’ information at risk and could in turn have an adverse effect on our business.

 

Public scrutiny of Internet privacy issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current products and solutions to our members and customers, thereby harming our business.

 

The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet have recently come under increased public scrutiny. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices.

 

Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted, or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our website, products, features or our privacy policy. In particular, the success of our business has been, and we expect will continue to be, driven by our ability to responsibly use the data that our members share with us. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of data our members choose to share with us, or regarding the manner in which the express or implied consent of consumers for such use and disclosure is obtained. Such changes may require us to modify our products and features, possibly in a material manner, and may limit our ability to develop new products and features that make use of the data that our members voluntarily share with us.

 

Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.

 

We are subject to a variety of laws in the United States and abroad, including laws regarding data retention, privacy and consumer protection, that are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United States. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition,

 

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regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection and other matters that may be applicable to our business. It is also likely that as our business grows and evolves and our solutions are used in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject. See the discussion included in “Government Regulation” beginning on page 84 of this prospectus.

 

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain solutions, which would negatively affect our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.

 

We expect our operating results to fluctuate on a quarterly and annual basis.

 

Our revenue and operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance because of a variety of factors, some of which are outside of our control. Any of these events could cause the market price of our Class A common stock to fluctuate. Factors that may contribute to the variability of our operating results include:

 

   

the unproven nature of our business model;

 

   

our commitment to putting our members first even if it means forgoing short-term revenue opportunities;

 

   

the cost of investing in our technology infrastructure may be greater than we anticipate;

 

   

our ability to increase our member base and member engagement;

 

   

disruptions or outages in our website availability, actual or perceived breaches of privacy, and compromises of our member data;

 

   

the entrance of new competitors in our market whether by established companies or the entrance of new companies;

 

   

changes in our pricing policies or those of our competitors;

 

   

macroeconomic changes, in particular, deterioration in labor markets, which would adversely impact sales of our hiring solutions, or economic growth that does not lead to job growth, for instance increases in productivity;

 

   

the timing and costs of expanding our field sales organization and delays or inability in achieving expected productivity;

 

   

our ability to increase sales of our products and solutions to new customers and expand sales of additional products and solutions to our existing customers;

 

   

the size and seasonal variability of our customers’ recruiting and marketing budgets;

 

   

the extent to which existing customers renew their agreements with us and the timing and terms of those renewals; and

 

   

general industry and macroeconomic conditions.

 

Given our short operating history and the rapidly evolving market of online professional networks, our historical operating results may not be useful to you in predicting our future operating results. We believe our rapid growth has masked the cyclicality and seasonality of our business. As our revenue growth rate slows, we

 

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expect that the cyclicality and seasonality in our business may become more pronounced and may in the future cause our operating results to fluctuate. In particular, we expect sales of hiring solutions to be weaker in the first quarter of the year due to budgetary cycles and sales of our marketing solutions to be weaker in the third quarter of the year as Internet usage during the summer months generally slows.

 

We expect our revenue growth rate to decline, and, as our costs increase, we may not be able to generate sufficient revenue to sustain our profitability over the long term.

 

From 2008 to 2010, our net revenue grew from $78.8 million to $243.1 million, which represents a compounded annual growth rate of approximately 76%. We expect that, in the future, as our net revenue increases to higher levels our revenue growth rate will decline over time, and we may not be able to generate sufficient revenue to sustain our profitability. 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. We expect to continue to expend substantial financial and other resources on:

 

   

our technology infrastructure, including website architecture, development tools scalability, availability, performance and security, as well as disaster recovery measures;

 

   

product development, including investments in our product development team and the development of new features;

 

   

sales and marketing, including a significant expansion of our field sales organization;

 

   

international expansion in an effort to increase our member base, engagement and sales; and

 

   

general administration, including legal and accounting expenses related to being a public company.

 

These investments may not result in increased revenue or growth in our business. If we fail to continue to grow our revenue and overall business, our operating results and business would be harmed.

 

We expect to face increasing competition in the market for online professional networks from social networking sites and Internet search companies, among others, as well as continued competition for customers of our hiring and marketing solutions.

 

We face significant competition in all aspects of our business, and we expect such competition to increase, particularly in the market for online professional networks.

 

Our industry is evolving rapidly and is becoming increasingly competitive. Larger and more established companies may focus on our market and could directly compete with us. Smaller companies, including application developers, could also launch new products and services that compete with us and that could gain market acceptance quickly. We also expect our existing competitors in the markets for hiring and marketing solutions to continue to focus on these areas. A number of these companies may have greater resources than us, which may enable them to compete more effectively. Additionally, users of social networks may choose to use, or increase their use of, those networks for professional purposes, which may result in those users decreasing or eliminating their use of LinkedIn. Companies that currently focus on social networking could also expand their focus to professionals. We and other companies have historically established alliances and relationships with some of these companies to allow broader exposure to users and access to data on the Internet. We may also, in the future, establish alliances or relationships with other competitors or potential competitors. To the extent companies terminate such relationships and establish alliances and relationships with others, our business could be harmed. Specifically, we compete for members, enterprises and professional organizations as discussed below.

 

Members—Professional Networks. The market for online professional networks is new and rapidly evolving. Other companies such as Facebook, Google, Microsoft and Twitter could develop competing solutions

 

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or partner with third parties to offer such products. We face competition from a number of smaller companies in international markets, such as Xing in Germany and Viadeo in France, that provide online professional networking solutions, as well as Internet companies in the customer relationship management market, such as Salesforce.com (Chatter and Jigsaw). Our competitors may announce new products, services or enhancements that better address changing industry standards or the needs of members and customers, such as mobile access. Any such increased competition could cause pricing pressure, loss of market share or decreased member engagement, any of which could adversely affect our business and operating results. Internet search engines could also change their methodologies in ways that adversely affect our ability to optimize our page rankings within their search results.

 

Enterprises and Professional Organizations—Recruiting. With respect to our hiring solutions, we compete with established online recruiting companies, such as Monster+HotJobs and CareerBuilder, talent management companies, such as Taleo, and traditional recruiting firms. If the efficiency and usefulness of our products to enterprises and professional organizations do not continue to exceed those provided by competitors, which factors are influenced by the number and engagement of our members, we will not be able to compete successfully.

 

Enterprises and Professional Organizations—Advertising and Marketing. With respect to our marketing solutions, we compete with online and offline outlets that generate revenue from advertisers and marketers. To the extent competitors are better able to provide advertisers with cost-effective access to attractive demographics, either through new business models or increased user volume, we may not be successful in retaining our existing advertisers or attracting new advertisers, and our business would be harmed.

 

Finally, other companies that provide content for professionals could develop more compelling offerings that compete with our premium subscriptions and adversely impact our ability to sell and renew subscriptions to our members.

 

If we fail to effectively manage our growth, our business and operating results could be harmed.

 

We continue to experience rapid growth in our headcount and operations, which will continue to place significant demands on our management and our operational and financial infrastructure. As of December 31, 2010, approximately 57% of our employees had been with us for less than one year and approximately 74% for less than two years. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, and we must maintain the beneficial aspects of our corporate culture. In particular, we intend to continue to make substantial investments to expand our research and development, field sales, and general and administrative organizations, and our international operations. To attract top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those employees. The risks of over-hiring or over-compensating and the challenges of integrating a rapidly growing employee base into our corporate culture are exacerbated by our international expansion. Additionally, we may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.

 

Additionally, if we do not effectively manage the growth of our business and operations, the quality of our solutions could suffer, which could negatively affect our brand, operating results and overall business. Further, we have made changes in the past, and will in the future make changes, to our features, products and services that our members or customers may not like, find useful or agree with. We may also decide to discontinue certain features, products or services, or charge for certain features, products or services that are currently free or increase fees for any of our features, products or services. If members or customers are unhappy with these changes, they may decrease their engagement on our site, or stop using features, products or services or the site generally. They may, in addition, choose to take other types of action against us such as organizing petitions or

 

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boycotts focused on our company, our website or any of our services, filing claims with the government or other regulatory bodies, or filing lawsuits against us. Any of these actions could negatively impact our member growth and engagement and our brand, which would harm our business. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls, and our reporting systems and procedures by, among other things:

 

   

improving our information technology infrastructure to maintain the effectiveness of our solutions;

 

   

enhancing information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other and our growing base of members, enterprises and professional organizations;

 

   

enhancing our internal controls to ensure timely and accurate reporting of all of our operations; and

 

   

appropriately documenting our information technology systems and our business processes.

 

These systems enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to implement these improvements effectively, our ability to manage our expected growth and comply with the rules and regulations that are applicable to publicly reporting companies will be impaired.

 

Our international operations are subject to increased challenges and risks.

 

We have started to expand our operations internationally, including opening several international offices and our website is available in English, as well as French, German, Italian, Portuguese and Spanish. We expect to significantly expand our international operations in the future by opening offices in new jurisdictions and expanding our offerings in new languages. However, we have limited operating history as a company outside the United States, and our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. International expansion will require us to invest significant funds and other resources. Expanding internationally may subject us to risks that we have either not faced before or increase risks that we currently face, including risks associated with:

 

   

recruiting and retaining talented and capable employees in foreign countries;

 

   

providing solutions across a significant distance, in different languages and among different cultures, including potentially modifying our solutions and features to ensure that they are culturally relevant in different countries;

 

   

increased competition from local websites and services, that provide online professional networking solutions, such as Germany-based Xing and France-based Viadeo, who may also expand their geographic footprint;

 

   

compliance with applicable foreign laws and regulations;

 

   

longer payment cycles in some countries;

 

   

credit risk and higher levels of payment fraud;

 

   

compliance with anti-bribery laws including without limitation, compliance with the Foreign Corrupt Practices Act;

 

   

currency exchange rate fluctuations;

 

   

foreign exchange controls that might prevent us from repatriating cash earned outside the United States;

 

   

political and economic instability in some countries, specifically in Ireland;

 

   

double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and

 

   

higher costs of doing business internationally.

 

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If our revenue from our international operations, and particularly from our operations in the countries and regions on which we have focused our spending, do not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer.

 

Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of members, enterprises and professional organizations, or our ability to increase their level of engagement.

 

We have developed a strong brand that we believe has contributed significantly to the success of our business. Our brand is predicated on the idea that individual professionals will find immense value in building and maintaining their professional identities and reputations on our platform. Maintaining, protecting and enhancing the “LinkedIn” brand is critical to expanding our base of members, enterprises, advertisers, corporate customers and other partners, and increasing their engagement with our website, and will depend largely on our ability to maintain member trust, be a technology leader and continue to provide high-quality solutions, which we may not do successfully. If we do not successfully maintain a strong brand, our business could be harmed.

 

We may not be able to successfully halt the operations of websites that aggregate our data as well as data from other companies, including social networks, or copycat websites that have misappropriated our data in the past or may misappropriate our data in the future.

 

From time to time, third parties have misappropriated our data through website scraping, robots or other means and aggregated this data on their websites with data from other companies. In addition, “copycat” websites have misappropriated data on our network and attempted to imitate our brand or the functionality of our website. When we have become aware of such websites, we have employed technological or legal measures in an attempt to halt their operations. However, we may not be able to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to stop their operations. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against such websites. Regardless of whether we can successfully enforce our rights against these websites, any measures that we may take could require us to expend significant financial or other resources.

 

Failure to protect or enforce our intellectual property rights could harm our business and operating results.

 

We regard the protection of our trade secrets, copyrights, trademarks, trade dress, domain names and patents as critical to our success. In particular, we must maintain, protect and enhance the “LinkedIn” brand. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.

 

We pursue the registration of our domain names, trademarks, and service marks in the United States and in certain locations outside the United States. Effective trade secret, copyright, trademark, trade dress, domain name and patent prosecution is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. We are seeking to protect our trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful or which may not pursue in every location. We may, over time, increase our investment in protecting our innovations through increased patent filing that is expensive and time-consuming.

 

Litigation may be necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless

 

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of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and operating results. We may incur significant costs in enforcing our trademarks against those who attempt to imitate our “LinkedIn” brand. If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed and the market price of our Class A common stock could decline.

 

We are, and may in the future be, subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

 

From time to time, we face, and we expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors or non-practicing entities. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering certain features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs.

 

In addition, we use open source software in our solutions and will use open source software in the future. From time to time, we may face claims against companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our solutions, any of which would have a negative effect on our business and operating results.

 

Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the final outcome of those matters that we currently face will have a material adverse effect on our business. However, there can be no assurance that our expectations will prove correct, and even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results, our reputation or the market price of our Class A common stock.

 

If we do not continue to attract new customers, or if existing customers do not renew their subscriptions, renew on less favorable terms, or fail to purchase additional solutions, we may not achieve our revenue projections, and our operating results would be harmed.

 

In order to grow our business, we must continually attract new customers, sell additional solutions to existing customers and reduce the level of non-renewals in our business. Our ability to do so depends in large part on the success of our sales and marketing efforts. We do not typically enter into long-term contracts with our customers, and even when we do, they can generally terminate their relationship with us. We have limited historical data with respect to rates of customer renewals, upgrades and expansions, so we may not accurately predict future trends for any of these metrics. Furthermore, unlike traditional software companies, the nature of our products and solutions is such that customers may decide to terminate or not renew their agreements with us without causing significant disruptions to their own businesses.

 

We must demonstrate that our hiring solutions are an important recruiting tool for enterprises and professional organizations and that our marketing solutions provide them with access to an audience of one of the most influential, affluent and highly educated audiences on the Internet. However, potential customers may not be familiar with our solutions or may prefer other more traditional products and services for their hiring, advertising and marketing needs.

 

The rate at which we expand our customer base or increase our customers’ renewal rates may decline or fluctuate because of several factors, including the prices of our solutions, the prices of products and services

 

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offered by our competitors, reduced hiring by our customers or reductions in their hiring or marketing spending levels due to macroeconomic or other factors and the efficacy and cost-effectiveness of our solutions. If we do not attract new customers or if our customers do not renew their agreements for our solutions, renew on less favorable terms, or do not purchase additional functionality or offerings, our revenue may grow more slowly than expected or decline.

 

Ultimately, attracting new customers and retaining existing customers requires that we continue to provide high quality solutions that our customers value. In particular, our hiring solutions customers will discontinue their purchases of our solutions if we fail to effectively connect them with the talent they seek, and our premium subscribers will discontinue their subscriptions if they do not find the networking and business opportunities that they value. Similarly, customers of our marketing solutions will not continue to do business with us if their advertisements do not reach their intended audiences. Therefore we must continue to demonstrate to our customers that using our marketing solutions is the most effective and cost-efficient way to maximize their results. Even if our marketing solutions are providing value to our customers, advertisers are sensitive to general economic downturns and reductions in consumer spending, among other events and trends, which generally results in reduced advertising expenditures and could adversely affect sales of our marketing solutions. If we fail to provide high quality solutions and convince customers of our value proposition, we may not be able to retain existing customers or attract new customers, which would harm our business and operating results.

 

Because we recognize most of the revenue from our hiring solutions and our premium subscriptions over the term of the agreement, a significant downturn in these businesses may not be immediately reflected in our operating results.

 

We recognize revenue from sales of our hiring solutions and premium subscriptions over the terms of the agreements, which is typically 12 months. As a result, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. Consequently, a decline in new or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in the sales of these offerings may not be reflected in our short-term results of operations.

 

We depend on world class talent to grow and operate our business, and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.

 

Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain world class talent. Our ability to execute efficiently is dependent upon contributions from all of our employees, in particular our senior management team. Key institutional knowledge remains with a small group of long-term employees and directors whom we may not be able to retain. We may not be able to retain the services of any of our long-term employees or other members of senior management in the future. We do not have employment agreements other than offer letters with any key employee, and we do not maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed.

 

Our growth strategy also depends on our ability to expand and retain our organization with world class talent. Identifying, recruiting, training and integrating qualified individuals will require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best talent. Competition for these resources is intense, particularly in the San Francisco Bay Area, where our headquarters is located. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.

 

We believe that our culture has the potential to be a key contributor to our success. From 2009 to 2010, we doubled the size of our workforce, and we expect to continue to hire aggressively as we expand, especially in

 

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field sales and internationally. If we do not continue to develop our corporate culture as we grow and evolve, including maintaining our culture of transparency with our employees, it could harm our ability to foster the innovation, creativity and teamwork we believe we need to support our growth. In addition, our initial public offering could create disparities of wealth among our employees, which could adversely impact relations among employees and our culture in general.

 

Many individuals are using devices other than personal computers to access the Internet. If users of these devices do not widely adopt solutions we develop for these devices, our business could be adversely affected.

 

The number of people who access the Internet through devices other than personal computers, including mobile telephones, personal digital assistants, smart phones and handheld tablets or computers, has increased dramatically in the past few years and is projected to continue to increase. If we are unable to develop mobile solutions to meet the needs of our users, our business could suffer. Additionally, as new devices and new platforms are continually being released, it is difficult to predict the problems we may encounter in developing versions of our solutions for use on these alternative devices, and we may need to devote significant resources to the creation, support, and maintenance of such devices.

 

The effectiveness of our marketing solutions depends in part on our relationships with advertising serving technology companies.

 

We rely, in part, on advertising serving technology companies to deliver our marketing solutions product. Our agreements with these companies may not be extended or renewed after their respective expirations, or we may not be able to extend or renew our agreements on terms and conditions favorable to us. If these agreements are terminated, we may not be able to enter into agreements with alternative companies on acceptable terms or on a timely basis or both, which could negatively impact revenue from our marketing solutions.

 

Enterprises or professional organizations, including governmental agencies, may restrict access to our website, which could lead to the loss or slowing of growth in our member base or the level of member engagement.

 

Our solutions depend on the ability of our members to access the Internet and our website. Enterprises or professional organizations, including governmental agencies, could block access to our website or the Internet generally for a number of reasons such as security or confidentiality concerns or regulatory reasons, or they may adopt policies that prohibit listing the employers’ names on the employees’ LinkedIn profiles in order to minimize the risk that employees will be contacted and hired by other employers. For example, the government of the People’s Republic of China recently blocked access to our site in China for a short period of time. We cannot assure you that the Chinese government will not block access to one or more of our features and products or our entire site in China for a longer period of time or permanently. If these entities block or limit access to our website or adopt policies restricting our members from providing us with accurate and up-to-date information, the value of our network could be negatively impacted, which would adversely affect our ability to offer compelling hiring and marketing solutions and subscriptions to our members, enterprises, professional organizations and customers.

 

If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our member engagement could decline.

 

We depend in part on various Internet search engines, such as Google, Bing and Yahoo!, to direct a significant amount of traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in an attempt to improve their search results, which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are

 

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detrimental to our new user growth or in ways that make it harder for our members to use our website, or if our competitors’ SEO efforts are more successful than ours, overall growth in our member base could slow, member engagement could decrease, and we could lose existing members. These modifications may be prompted by search engine companies entering the online professional networking market or aligning with competitors. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our website would harm our business and operating results.

 

Our growth depends in part on the success of our strategic relationships with third parties.

 

We anticipate that we will continue to depend on relationships with various third parties, including technology and content providers to grow our business. Identifying, negotiating and documenting relationships with third parties require significant time and resources, as does integrating third-party content and technology. Our agreements with technology and content providers and similar third parties are typically non-exclusive and do not prohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to these parties to favor their solutions or may prevent us from developing strategic relationships with these parties. In addition, these third parties may not perform as expected under our agreements with them, and we have had, and may in the future have, disagreements or disputes with these parties, which could negatively affect our brand and reputation. It is possible that these third parties may not be able to devote the resources we expect to the relationship. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, and our operating results would suffer. Even if we are successful, these relationships may not result in improved operating results.

 

If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

 

As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency, and an increasing percentage of our international revenue is from customers who pay us in currencies other than the U.S. dollar. Fluctuations in the exchange rates between the U.S. dollar and those other currencies could result in the dollar equivalent of such expenses being higher and/or the dollar equivalent of such foreign-denominated revenue being lower than would be the case if exchange rates were stable. This could have a negative impact on our reported operating results. To date, we have not engaged in any hedging strategies, and any such strategies, such as forward contracts, options and foreign exchange swaps related to transaction exposures that we may implement to mitigate this risk may not eliminate our exposure to foreign exchange fluctuations.

 

The intended tax benefits of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how we operate our business.

 

Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to reduce our worldwide effective tax rate. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and harm our financial position and results of operations.

 

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The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our financial position and results of operations.

 

The current administration has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed new legislation. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.

 

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

 

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.

 

Risks Related to Our Class A Common Stock and this Offering

 

The dual class structure of our common stock as contained in our charter documents has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founders and our executive officers, employees and directors and their affiliates, and limiting your ability to influence corporate matters.

 

Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this initial public offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our founders, and our executive officers, employees and directors and their affiliates, will together hold approximately     % of the voting power of our outstanding capital stock following this offering, and our co-founder and Chair, Reid Hoffman, will control approximately     % of our outstanding Class A and Class B common stock, representing approximately     % of the voting power of our outstanding capital stock, following this offering, and therefore will have significant influence over the management and affairs of the company and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future.

 

In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined

 

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voting power of our common stock even when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.

 

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Hoffman retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control a majority of the combined voting power of our Class A and Class B common stock. As a board member, Mr. Hoffman owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Hoffman is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.

 

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.

 

Provisions in our certificate of incorporation and bylaws, as amended and restated in connection with this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:

 

   

authorize our board of directors to issue, without further action by the stockholders, up to              shares of undesignated preferred stock;

 

   

require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

 

   

specify that special meetings of our stockholders can be called only by our board of directors, the Chair of our board of directors, or our Chief Executive Officer;

 

   

establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

 

   

establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms;

 

   

prohibit cumulative voting in the election of directors;

 

   

provide that our directors may be removed only for cause;

 

   

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

require the approval of our board of directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation; and

 

   

reflect two classes of common stock, as discussed above.

 

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

 

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Our share price may be volatile, and you may be unable to sell your shares at or above the offering price, if at all.

 

The initial public offering price for the shares of our Class A common stock will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our Class A common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

   

actual or anticipated fluctuations in our financial condition and operating results;

 

   

changes in projected operational and financial results;

 

   

addition or loss of significant customers;

 

   

changes in laws or regulations applicable to our solutions;

 

   

actual or anticipated changes in our growth rate relative to our competitors;

 

   

announcements of technological innovations or new offerings by us or our competitors;

 

   

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;

 

   

additions or departures of key personnel;

 

   

issuance of new or updated research or reports by securities analysts;

 

   

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

   

sales of our Class A or Class B common stock by us or our stockholders;

 

   

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

the expiration of contractual lock-up agreements; and

 

   

general economic and market conditions.

 

Furthermore, the stock markets recently have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

 

Prior to this offering, there has been limited trading of our common stock in alternative online markets at prices that may be higher than what our Class A common stock will trade at once it is listed.

 

While, prior to this offering, our shares have not been listed on any stock exchange or other public trading market, there has been some trading of our securities, for instance, in private trades or trades on alternative online markets, such as SecondMarket and SharesPost, that exist for privately traded securities. These markets are speculative, and the trading price of our securities on these markets is privately negotiated. The future value of our Class A common stock will depend to a large degree on our business and financial performance, and we cannot assure you that the price of our Class A common stock will equal or exceed the price at which our securities have traded on these private secondary markets.

 

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We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

 

The net proceeds from this offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, we do not have any agreements or commitments for any acquisitions at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

Because the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding Class A and Class B common stock following this offering, new investors will experience immediate and substantial dilution.

 

The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our Class A and Class B common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $             per share, the difference between the price per share you pay for our Class A common stock and its pro forma net tangible book value per share as of December 31, 2010, after giving effect to the issuance of              shares of our Class A common stock in this offering. See “Dilution” on page 38. Furthermore, investors purchasing shares of our Class A common stock in this offering will only own approximately     % of our outstanding shares of Class A and Class B common stock (and have     % of the combined voting power of the outstanding shares of our Class A and Class B common stock), after the offering even though their aggregate investment will represent     % of the total consideration received by us in connection with all initial sales of              shares of our capital stock outstanding as of December 31, 2010, after giving effect to the issuance of shares of our Class A common stock in this offering and              shares of our Class A common stock to be sold by certain selling stockholders. To the extent outstanding options to purchase our Class B common stock are exercised, investors purchasing our Class A common stock in this offering will experience further dilution.

 

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

 

The trading market for our Class A common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

 

Future sales of our Class A common stock in the public market could cause our share price to decline.

 

Sales of a substantial number of shares of our Class A common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of outstanding shares of our common stock as of December 31, 2010, upon completion of this offering, we will have              shares of Class A common stock and 88,955,943 shares of Class B common stock outstanding, assuming no exercise of our outstanding options.

 

All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares

 

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held by our affiliates as defined in Rule 144 under the Securities Act. The remaining              shares of Class B common stock outstanding after this offering, based on shares outstanding as of December 31, 2010, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus, subject to certain extensions.

 

Morgan Stanley & Co. Incorporated may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period.

 

After this offering, the holders of 45,185,435 shares of Class B common stock, or     % of our total outstanding common stock, based on shares outstanding as of December 31, 2010, will be entitled to rights with respect to registration of these shares under the Securities Act pursuant to an investors’ rights agreement. Shares of our Class B common stock automatically will convert into shares of our Class A common stock upon any sale or transfer, whether or not for value, except for certain transfers described in our amended and restated certificate of incorporation to become effective upon completion of this offering. If these holders of our Class B common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our Class A common stock. If we file a registration statement for the purposes of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. We intend to file a registration statement on Form S-8 under the Securities Act to register approximately              million shares of our Class A common stock for issuance under our Amended and Restated 2003 Stock Incentive Plan and 2011 Equity Incentive Plan. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to a 180-day lock-up period and other restrictions provided under the terms of the applicable plan and/or the option agreements entered into with option holders.

 

No public market for our Class A common stock currently exists, and an active public trading market may not develop or be sustained following this offering.

 

Prior to this offering, there has been no public market for our Class A common stock, and there has been no public market for our Class B common stock other than the limited trading that has occurred on alternative online markets, such as SecondMarket and SharesPost, which has been occurring on a speculative basis. Although we expect to apply to list our Class A common stock on a national securities exchange, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we will trade and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

 

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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

 

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.

 

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on our management’s assessment of our internal controls.

 

We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

 

During 2008, we identified a material weakness in our internal control over financial reporting due to an ineffective financial statement closing and review process that resulted in certain misstatements in our 2006 and 2007 financial statements. Our 2006 and 2007 financial statements were restated to correct the misstatements and we remediated the material weakness in 2008.

 

Certain significant deficiencies remain, and we have taken steps to remediate these significant deficiencies. Although we believe the actions we have taken will remediate these significant deficiencies during 2011, we may fail to do so or could experience unforeseen difficulties causing new significant deficiencies or material

 

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weaknesses. In addition, we may need to operate for an extended period of time with the new or revised controls in place before these significant deficiencies will be determined to be remediated.

 

If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline.

 

We do not intend to pay dividends for the foreseeable future.

 

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

our ability to timely and effectively scale and adapt our existing technology and network infrastructure;

 

   

our ability to increase engagement of our solutions by our members, enterprises and professional organizations;

 

   

our ability to protect our users’ information and adequately address privacy concerns;

 

   

our ability to maintain an adequate rate of revenue growth;

 

   

the effects of increased competition in our market;

 

   

our ability to effectively manage our growth;

 

   

our ability to successfully enter new markets and manage our international expansion;

 

   

to maintain, protect and enhance our brand and intellectual property;

 

   

costs associated with defending intellectual property infringement and other claims;

 

   

the attraction and retention of qualified employees and key personnel; and

 

   

other risk factors included under “Risk Factors” in this prospectus.

 

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

 

You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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Market, Industry and Other Data

 

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products and services. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information and cannot assure you of its accuracy or completeness. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds to us from the sale of the shares of our Class A common stock offered by us will be approximately $             million, based on an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us of this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. Based on our current cash and cash equivalents balance together with cash generated from operations, we do not expect that we will have to utilize any of the net proceeds to us of this offering to fund our operations during the next 12 months. We will have broad discretion over the uses of the net proceeds in this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

 

DIVIDEND POLICY

 

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table shows our cash and cash equivalents and our capitalization as of December 31, 2010 on:

 

   

an actual basis;

 

   

a pro forma basis, giving effect to the filing of our amended and restated certificate of incorporation and the automatic conversion of all outstanding shares of preferred stock and common stock into an aggregate of 88,955,943 shares of Class B common stock prior to the completion of this offering as if such conversion had occurred on December 31, 2010; and

 

   

a pro forma as adjusted basis, giving effect to the sale by us of              shares of Class A common stock in this offering, at an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the sale of              shares of Class A common stock by the selling stockholders.

 

     As of December 31, 2010  
     Actual     Pro Forma     Pro Forma,
As Adjusted  (1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 92,951      $ 92,951      $   
                        

Redeemable convertible preferred stock, $0.0001 par value: 11,157,993 shares authorized, 10,957,631 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

   $ 87,981      $      $   

Stockholders’ equity:

      

Convertible preferred stock, $0.0001 par value: 34,689,570 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     15,846     

 

  

 

 

  

Preferred stock, $0.0001 par value; no shares authorized, issued and outstanding, actual; 100,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

  

 

  

 

 

  

 

 

  

Common stock, $0.0001 par value: 120,000,000 shares authorized, 43,308,742 shares issued and outstanding, actual; 1,000,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     4            

Class A common stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 1,000,000,000 shares authorized, no shares issued and outstanding, pro forma; 1,000,000,000 shares authorized,              shares issued and outstanding, pro forma as adjusted

  

 

  

 

 

  

 

Class B common stock, $0.0001 par value: no shares authorized, issued and outstanding, actual; 120,000,000 shares authorized, 88,955,943 shares issued and outstanding, pro forma and pro forma as adjusted

            9     

Additional paid-in capital

     25,074        128,896     

Accumulated other comprehensive loss

     (3     (3  

Accumulated deficit

     (4,672     (4,672  
                        

Total stockholders’ equity

     36,249        124,230     
                        

Total capitalization

   $ 124,230      $ 124,230      $                
                        

 

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  (1)   A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) cash and cash equivalents, and additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

The total number of shares of our Class A and Class B common stock reflected in the discussion and table above is based on no shares of Class A common stock and 88,955,943 shares of our Class B common stock (including preferred stock on an as converted basis) outstanding on a pro forma basis, as of December 31, 2010, and excludes, as of December 31, 2010:

 

   

15,202,015 shares of Class B common stock issuable upon the exercise of outstanding options granted pursuant to our Amended and Restated 2003 Stock Incentive Plan at a weighted-average exercise price of $3.97 per share;

 

   

952,873 unallocated shares of Class B common stock available for future issuance under our Amended and Restated 2003 Stock Incentive Plan; and

 

   

                     additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2011 Equity Incentive Plan, which will become effective in connection with this offering.

 

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DILUTION

 

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. The historical net tangible book value of our common stock as of December 31, 2010 was $119.0 million, or $2.75 per share. Historical net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of shares of outstanding common stock.

 

After giving effect to the (i) automatic conversion of our outstanding preferred stock into our Class B common stock immediately prior to the completion of this offering and (ii) receipt of the net proceeds from our sale of          shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2010 would have been $        million, or $        per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $        per share to existing stockholders and an immediate dilution of $        per share to new investors purchasing Class A common stock in this offering.

 

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share

      $    

Pro forma net tangible book value per share as of December 31, 2010

   $               

Increase per share attributable to this offering

     
           

Pro forma net tangible book value per share, as adjusted to give effect to this offering

     
       

Dilution in pro forma net tangible book value per share to new investors in this offering

      $    
       

 

A $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $        per share and the dilution to new investors by $        per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $        per share and the dilution to new investors by $        per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share of our Class A and Class B common stock, as adjusted to give effect to this offering, would be $        per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $        per share of Class A common stock.

 

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The table below summarizes as of December 31, 2010, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors purchasing our Class A common stock in this offering at an assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

                       $                                 $                

New investors

            
                                    

Total

        100.0   $           100.0  
                                    

 

The total number of shares of our Class A and Class B common stock reflected in the discussion and tables above is based on no shares of Class A common stock and 88,955,943 shares of our Class B common stock (including preferred stock on an as converted basis) outstanding, as of December 31, 2010, and excludes, as of December 31, 2010:

 

   

15,202,015 shares of Class B common stock issuable upon the exercise of outstanding options granted pursuant to our Amended and Restated 2003 Stock Incentive Plan at a weighted-average exercise price of $3.97 per share;

 

   

952,873 unallocated shares of Class B common stock available for future issuance under our Amended and Restated 2003 Stock Incentive Plan; and

 

   

                     additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2011 Equity Incentive Plan, which will become effective in connection with this offering.

 

Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to         shares, or     % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to          shares, or     % of the total number of shares of our common stock outstanding after this offering. In addition, if the underwriters’ over-allotment option is exercised in full, the number of shares held by the existing stockholders after this offering would be reduced to     % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to        shares, or     % of the total number of shares of our common stock outstanding after this offering.

 

To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our Amended and Restated 2003 Stock Incentive Plan as of December 31, 2010 were exercised, then our existing stockholders, including the holders of these options, would own     % and our new investors would own     % of the total number of shares of our Class A and Class B common stock outstanding upon the completion of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $         million, or     %, the total consideration paid by our new investors would be $         million, or     %, the average price per share paid by our existing stockholders would be $         and the average price per share paid by our new investors would be $            .

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

You should read the following selected historical consolidated financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included in this prospectus. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included in this prospectus.

 

The consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the consolidated balance sheet data as of December 31, 2009 and 2010 are derived from our audited consolidated financial statements included in this prospectus. The consolidated statements of operations data for the years ended December 31, 2006 and 2007 and the consolidated balance sheet data as of December 31, 2006, 2007 and 2008 are derived from our audited consolidated financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

 

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     Year Ended December 31,  
     2006     2007     2008     2009     2010  
     (in thousands, except per share data)  

Consolidated Statements of Operations Data:

          

Net revenue

   $  9,836      $  32,486      $  78,773      $ 120,127      $ 243,099   

Costs and expenses:

          

Cost of revenue (exclusive of depreciation and amortization shown separately below)

     2,019        7,384        18,589        25,857        44,826   

Sales and marketing

     1,555        5,037        16,986        26,847        58,978   

Product development

     4,411        11,578        29,366        39,444        65,104   

General and administrative

     2,248        6,812        12,976        19,480        35,064   

Depreciation and amortization

     973        2,107        6,365        11,854        19,551   
                                        

Total costs and expenses

     11,206        32,918        84,282        123,482        223,523   
                                        

Income (loss) from operations

     (1,370     (432     (5,509     (3,355     19,576   

Other income (expense), net

     696        773        1,277        230        (610
                                        

Income (loss) before income taxes

     (674     341        (4,232     (3,125     18,966   

Provision for income taxes

     3        13        290        848        3,581   
                                        

Net income (loss)

   $ (677   $ 328      $ (4,522   $ (3,973   $ 15,385   
                                        

Net income (loss) attributable to common stockholders

   $ (677   $     $ (4,522   $ (3,973   $ 3,429   
                                        

Net income (loss) per share attributable to common stockholders:

          

Basic

   $ (0.02   $ 0.00      $ (0.11   $ (0.10   $ 0.08   
                                        

Diluted

   $ (0.02   $ 0.00      $ (0.11   $ (0.10   $ 0.07   
                                        

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:

          

Basic

     31,438        38,092        42,389        41,184        42,446   
                                        

Diluted

     31,438        38,961        42,389        41,184        46,459   
                                        

Pro forma net income per share attributable to common stockholders (1) (unaudited):

          

Basic

           $ 0.17   
                

Diluted

           $ 0.17   
                

Pro forma weighted-average shares used to compute pro forma net income per share attributable to common stockholders(1) (unaudited):

          

Basic

             88,091   
                

Diluted

             92,104   
                

Other Financial and Operational Data:

          

Adjusted EBITDA (2)

   $ (285   $ 3,480      $ 5,461      $ 14,651      $ 47,959   

Number of registered members (at period end)

     7,885        16,712        32,307        55,111        90,437   

 

 

  (1)   Pro forma net income (loss) per share has been calculated assuming the conversion of all outstanding shares of our preferred stock and common stock into 88,955,943 shares of our Class B common stock prior to the completion of this offering.

 

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  (2)   We define adjusted EBITDA as net income (loss), plus: provision for income taxes, other income (expense), net, depreciation and amortization, and stock-based compensation. Please see “Adjusted EBITDA” below for more information and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP.

 

Stock-based compensation included in the statements of operations data above was as follows:

 

     Year Ended December 31,  
     2006     2007      2008      2009      2010  
     (in thousands)  

Cost of revenue

   $ 5      $ 87       $ 298       $ 370       $ 439   

Sales and marketing

     13        163         513         657         1,225   

Product development

     78        599         1,214         2,346         3,248   

General and administrative

     16        956         2,580         2,779         3,920   
                                           

Total stock-based compensation

   $ 112      $ 1,805       $ 4,605       $ 6,152       $ 8,832   
                                           
     As of December 31,  
     2006     2007      2008      2009      2010  
     (in thousands)  

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

   $ 4,073      $ 17,946       $ 80,495       $ 89,979       $ 92,951   

Property and equipment, net

     2,162        9,702         21,724         25,730         56,743   

Working capital

     1,595        10,175         71,486         71,885         66,734   

Total assets

     7,718        35,162         122,062         148,559         238,188   

Redeemable convertible preferred stock

     (100     12,700         87,981         87,981         87,981   

Convertible preferred stock

     15,413        15,413         15,413         15,413         15,846   

Total stockholders’ equity

     3,961        6,589         5,230         9,082         36,249   

 

Adjusted EBITDA

 

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

 

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers.

 

Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

 

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

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adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

   

adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated:

 

     Year Ended December 31,  
     2006     2007     2008     2009     2010  
     (in thousands)  

Reconciliation of Adjusted EBITDA:

          

Net income (loss)

   $ (677   $ 328      $ (4,522   $ (3,973   $ 15,385   

Provision for income taxes

     3        13        290        848        3,581   

Other (income) expense, net

     (696     (773     (1,277     (230     610   

Depreciation and amortization

     973        2,107        6,365        11,854        19,551   

Stock-based compensation

     112        1,805        4,605        6,152        8,832   
                                        

Adjusted EBITDA

   $ (285   $ 3,480      $ 5,461      $ 14,651      $ 47,959   
                                        

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

 

Overview

 

We are the world’s largest professional network on the Internet with more than 90 million members in over 200 countries and territories. Through our proprietary platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities, enabling them to be more productive and successful. We believe we are creating significant value for professionals, enterprises and professional organizations worldwide by connecting talent with opportunity at massive scale.

 

Our comprehensive platform provides members with solutions, including applications and tools to search, connect and communicate with business contacts, learn about attractive career opportunities, join industry groups, research organizations and share information. At the core of our platform are our members, who create profiles that serve as their professional profiles and are accessible by any other member, as well as (unless a member chooses otherwise) anyone with an Internet connection. We believe that our platform allows our members to compete more effectively, make better decisions faster and manage their careers to achieve their full potential.

 

We provide enterprises and professional organizations of all sizes with solutions to identify specific talent within our global network, enable their employees to be more productive and successful, build brand awareness, and market their products and services. Enterprises and professional organizations that use our solutions include large corporations, small- and medium-sized businesses, educational institutions, government agencies, non-profit organizations and other similar entities.

 

Our financial objective is to create sustainable revenue and earnings growth over the long term. To best achieve this objective, we focus on our members who create their profiles on LinkedIn and utilize the majority of our solutions at no cost. We believe this approach is the best way to continue to build a critical mass of members resulting in beneficial network effects, which promote greater utilization of our solutions, higher levels of engagement and increased value for all of our members. Similarly, we strive to ensure that our hiring solutions, marketing solutions and premium subscriptions deliver a high level of value for both our customers and our members. We believe this monetization strategy creates a symbiotic relationship among members, customers and our entire network that supports our financial objective.

 

In May 2003, we launched the LinkedIn.com website, and by the end of 2003 we had 14 employees and over 78,000 members. In September 2004, we began generating revenue on our website through our marketing solutions. We launched LinkedIn Jobs, which is currently a component of our hiring solutions, and began generating revenue from it in March 2005. Later that year, we launched our first premium subscription product and began generating revenue from it in August 2005. In March 2008, we launched LinkedIn Corporate Solutions, a key component of our hiring solutions, further diversifying our sources of revenue. As of December 31, 2010, we had 990 employees and over 90 million members.

 

We were incorporated in Delaware in March 2003 and are headquartered in Mountain View, California. Our international headquarters is located in Dublin, Ireland. We have sales and marketing offices in Australia, Canada, India, the Netherlands and the United Kingdom. For 2010, 27% of our net revenue was derived from

 

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customers located outside the United States. We expect the percentage of total net revenue derived from outside the United States to increase in future periods as we continue to expand our international operations.

 

We have achieved significant growth as our network has scaled and as we have expanded our product offerings. In 2010, our net revenue was $243.1 million, which represented an increase of 102% from 2009. In 2010, we generated $15.4 million of net income and $48.0 million of adjusted EBITDA, which represented an increase of 487% and 227%, respectively, from 2009. Our future growth will depend, in part, on our ability to increase our member base and member engagement, which we believe will result in increased sales of our hiring solutions, marketing solutions and premium subscriptions to new and existing customers.

 

In 2011, our philosophy is to continue to invest for long-term growth. We expect to continue to invest heavily in our product development efforts to enable our members and customers to derive more value from our platform. In addition, we expect to continue to aggressively expand our field sales organization to market our solutions both in the United States and internationally. We expect to continue to make significant capital expenditures to upgrade our technology and network infrastructure to improve the ability of our website to handle expected increases in usage and to enable the release of new features and solutions. As a result of our investment philosophy, we do not expect to be profitable on a GAAP basis in 2011.

 

How We Generate Revenue

 

We generate revenue from selling our hiring solutions and marketing solutions offline through our field sales organization or online on our website. We also generate revenue from online sales of our premium subscriptions. Since 2008, net revenue from our hiring solutions has increased as a percentage of our total net revenue:

 

LOGO

 

     Year Ended December 31,  
      2008     2009     2010  
     (dollars in thousands)  

Net revenue by product:

      

Hiring solutions

   $ 17,352      $ 36,136      $ 101,884   

Marketing solutions

     25,972        38,278        79,309   

Premium subscriptions

     35,449        45,713        61,906   
                        

Total

   $ 78,773      $ 120,127      $ 243,099   
                        

Percentage of net revenue by product:

      

Hiring solutions

     22     30     42

Marketing solutions

     33        32        33   

Premium subscriptions

     45        38        25   
                        

Total

     100     100     100
                        

 

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Hiring Solutions. Revenue from our hiring solutions is derived primarily from the sale of our LinkedIn Corporate Solutions and LinkedIn Jobs products. LinkedIn Corporate Solutions allow enterprises and professional organizations to identify job candidates based on industry, job function, geography, experience, education, and other specifications. Our customers can also purchase job slots to utilize job postings on our website throughout the contract term. We recognize the net revenue from sales of LinkedIn Corporate Solutions ratably over the subscription period, which is typically 12 months and billed annually, quarterly or monthly. We also sell LinkedIn Jobs on our website to enterprises and professional organizations of all sizes. These jobs are generally posted for 30 days, and revenue from individual job postings is recognized over the same period.

 

Growth in our hiring solutions will largely depend on our ability to grow our customer pipeline while maintaining strong renewal and upsell rates with current customers, which will depend on increased productivity from our expanded field sales organization. In addition, our growth depends in part on minimizing cancellations and reductions in the number of licensed seats.

 

Marketing Solutions. Revenue from our marketing solutions is derived primarily from fees we receive from marketers, principally advertising agencies and direct advertisers, for display and text ads on our website. We also provide a self-service advertising solution that allows marketers to directly create and place ads on prominent pages on our website. Revenue from display or text ads is generally recognized when the advertisement is displayed on our website.

 

Growth in our marketing solutions will largely depend on our ability to provide marketers with targeted access to professionals, which will depend on our ability to increase our number of registered members, level of member engagement and advertising inventory. In addition, the success of our marketing solutions will depend on our ability to increase awareness of our solutions among marketers, which will depend on increased productivity from our expanded field sales organization, and overall continued growth in online advertising budgets.

 

Premium Subscriptions. Revenue from our premium subscriptions is derived primarily from online sales of our Business, Business Plus and Executive subscription products. These products provide our members, acting as individuals or on behalf of their enterprises or professional organizations, with access to more tools and features than our free membership, including enhanced search results, enhanced communication capability, improved organizational functionality and priority customer support. Premium subscriptions do not include other subscription revenue from sales of the Talent and Job Seeker families of products, which are part of our hiring solutions. We offer our members monthly or annual subscriptions. Revenue from our premium subscriptions is recognized ratably over the contract period, which is generally one to 12 months.

 

Growth in our premium subscriptions will largely depend on our ability to increase our number of registered members and level of member engagement as well as our ability to continue to offer features and content that our members, enterprises and professional organizations find compelling as sources of professional knowledge, insights and opportunities, while minimizing the number of cancellations and downgrades.

 

A substantial portion of our net revenue is subscription-based and exhibits characteristics that are similar to a software-as-a-service, or SaaS, business model. Specifically, LinkedIn Recruiter requires a significant upfront investment of resources to procure new business, but the resulting revenue is recognized over the contract period.

 

Key Metrics

 

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

 

   

Number of Registered Members. We define the number of registered members in our network as the number of individual users who have created a member profile on our website as of the date of measurement. We believe the number of registered members is a key indicator of the growth of our

 

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network and our ability to receive the benefits of the network effects resulting from such growth. Growth in our member base depends, in part, on our ability to successfully develop and market our solutions to professionals who have not yet become members of our network. Member growth will also be contingent on our ability to include additional languages on our website and continued international expansion of our member base. We typically experience slower member growth in the third quarter of the year as a result of decreased Internet usage by professionals during the summer months. We believe that a higher number of registered members will result in increased sales of our hiring and marketing solutions and premium subscriptions, as customers will have access to a larger pool of professional talent.

 

For example, from 2008 to 2009 and from 2009 to 2010, the number of our registered members increased 71% and 64%, respectively. Over this same period, we experienced a similar increase in our net revenue. While growth in the number of registered members is an important indicator of expected revenue growth, it also informs our management’s decisions with respect to those areas of our business that will require further investment to support expected future membership growth. For example, as the number of registered members increases, we will need to increase our capital expenditures to improve our information technology infrastructure to maintain the effectiveness of our solutions and the performance of our website for our members.

 

   

Unique Visitors. We define unique visitors as users who have visited our website at least once during a month regardless of whether they are a member, based on data provided by comScore, a leading provider of digital marketing intelligence. We view unique visitors as a key indicator of growth in our brand awareness among users and whether we are providing our members with useful products and features, thereby increasing member engagement. We believe that a higher level of member engagement will result in increased sales of our hiring and marketing solutions and premium subscriptions, as customers will have access to a larger pool of professional talent. Growth in unique visitors will be driven by our international expansion, growth in the number of registered members and improvements to features and products that drive member traffic to our website.

 

In the three months ended December 31, 2010, the number of unique visitors increased 80% over the three months ended December 31, 2009, reflecting increased traffic to our website by a growing number of users. While this increase in unique visitors helped to drive the increase in net revenue that we experienced during this period, it also provided management with important insights into the ways in which our users and members were using our website, including how they were coming to our website and which products and features best promoted brand awareness to attract users to our website.

 

   

Page Views. We define page views as the number of pages on our website that users view during the measurement period based on data provided by comScore. Similar to unique visitors, we believe page views is a key indicator for gaining insight into whether we are increasing member engagement and whether our members are deriving value from our solutions. We expect growth in page views will be driven, in part, by improvements in products and features that drive member traffic to our website, growth in the number of registered members and international expansion. However, page views may not capture all of the value that our members and other users derive from our solutions because part of the benefit of certain products and features is that the member or user does not need to visit our website to receive value from our platform. For example, members can respond to emails they receive from other members without accessing their LinkedIn account or our website.

 

In the three months ended December 31, 2010, the number of page views increased 98% over the three months ended December 31, 2009, reflecting increased use of the information, products and features available on our website by our users. While, similar to the increase in registered members and unique visitors, this increase in page views also helped to drive the increase in net revenue that we experienced during this period, it also provided management with important insights into the ways in which our users were utilizing the information, products and features on our website, which informs management’s decision on how to improve these products and features to provide our users with compelling reasons for continuing to come back to our website.

 

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Number of LinkedIn Corporate Solutions Customers. We define the number of LinkedIn Corporate Solutions customers as the number of enterprises and professional organizations that we have under active contracts for this product as of the date of measurement. Our LinkedIn Corporate Solutions include LinkedIn Recruiter, Job Slots, LinkedIn Referral Engine (beta), LinkedIn Recruitment Media and LinkedIn Career Pages. We believe the number of LinkedIn Corporate Solutions customers is a key indicator of our market penetration in the online recruiting market, the productivity of our field sales organization and the value that our products bring to both large and small enterprises and professional organizations. The number of customers subscribing to our LinkedIn Corporate Solutions product is particularly important to monitor given that we expect revenue from LinkedIn Corporate Solutions to continue to represent a significant portion of our total net revenue, and we are significantly investing in our ability to successfully sell this unique product in a new and rapidly evolving market.

 

From 2008 to 2009 and from 2009 to 2010, the number of LinkedIn Corporate Solutions customers increased 85% and 144%, respectively. Because we introduced our LinkedIn Corporate Solutions product in the last half of 2008, we did not have a full year of sales of this product until 2009. During this period, we experienced an increase in net revenue from sales of our hiring solutions, both in terms of absolute net revenue and as a percentage of our total net revenue (as further described in “Results of Operations” below), which was, and continues to be, largely driven by increases in the number of our customers that have purchased our LinkedIn Corporation Solutions products.

 

LOGO

 

  (1)   The number of registered members is higher than the number of actual members due to various factors. For more information, see “Risk Factors—The number of our registered members is higher than the number of actual members, and a substantial majority of our page views are generated by a minority of our members.”

 

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  (2)   Worldwide data provided by comScore, a leading provider of digital marketing intelligence. Beginning in August 2009, comScore changed the method by which it counts traffic, which makes prior data not meaningful for period over period comparison purposes.

 

   

Sales Channel Mix. Depending on the specific product, we sell our hiring and marketing solutions offline through our field sales organization or online on our website. The vast majority of our premium subscriptions are sold online on our website. Our field sales organization uses a direct sales force to solicit customers, agencies and resellers. This offline channel is characterized by a longer sales cycle where price can be negotiated, higher relative average selling prices, longer contract terms, higher selling expenses and a longer cash collection cycle compared to our online channel.

 

Our online sales channel allows members to purchase solutions directly on our website. Members can purchase premium subscriptions as well as certain lower priced products in our hiring and marketing solutions, such as job postings and self-service advertising. This channel is characterized by lower average selling prices and higher cancellations compared to our offline channel, lower selling costs due to our automated payments platform and a highly liquid collection cycle.

 

Historically, net revenue from our field sales channel has grown significantly faster than our online channel, and we expect this trend to continue. While we expect this trend to result in higher relative average selling prices for our solutions, we also expect it to result in higher selling expenses, which will adversely affect our gross and operating margins. The following table presents our net revenue by field sales and online sales:

 

     Year Ended December 31,  
     2008     2009     2010  
     (dollars in thousands)  

Field sales

   $ 37,329        47   $ 64,031         53   $ 135,691         56

Online sales

     41,444        53        56,096         47        107,408         44   
                                                  

Net revenue

   $ 78,773        100   $ 120,127         100   $ 243,099         100
                                                  

 

Cost of Revenue and Expenses

 

Cost of Revenue. Our cost of revenue primarily consists of web hosting costs related to operating our website and salaries, benefits and stock-based compensation for our customer support, infrastructure and advertising operations teams. Credit card processing fees, direct costs related to our research products, certain uncollected valued added taxes, or VAT, and sales taxes, allocated facilities costs, costs related to solutions offered to our customers in our production environment, and other supporting overhead costs are also included in cost of revenue. We currently expect cost of revenue to increase on an absolute basis and remain relatively flat as a percentage of revenue in the near term as we continue to expand data centers and headcount associated with supporting our website.

 

Sales and Marketing. Our sales and marketing expenses primarily consist of salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. In addition, sales and marketing expenses include customer acquisition marketing, branding, advertising and public relations costs, as well as allocated facilities and other supporting overhead costs. We plan to continue to invest heavily in sales and marketing to expand our global footprint, grow our current customer accounts and continue building brand awareness. In the near term, we expect sales and marketing expenses to increase on an absolute basis and as a percentage of revenue and to be our largest expense on an absolute basis and as a percentage of revenue.

 

Product Development. Our product development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers and developers. In addition, product development expenses include outside services and consulting, as well as allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our

 

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strategic objectives, and, as a result, we expect product development expense to increase on an absolute basis and increase as a percentage of revenue in the near term.

 

General and Administrative. Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include outside consulting, legal and accounting services, and facilities and other supporting overhead costs not allocated to other departments. We expect that our general and administrative expenses will increase on an absolute basis and increase as a percentage of revenue in the near term as we continue to expand our business and incur additional expenses associated with being a publicly traded company.

 

Depreciation and Amortization. Depreciation and amortization expenses primarily consist of depreciation on computer equipment, software, leasehold improvements, capitalized software development costs and amortization of purchased intangibles. We expect that depreciation and amortization expenses will increase on an absolute basis as we continue to expand our technology infrastructure but decline as a percentage of revenue over time.

 

Other Income (Expense), Net. Other income (expense), net consists primarily of the interest income earned on our cash and cash equivalents, foreign exchange gains and losses, and changes in the fair value of a warrant.

 

Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.

 

Results of Operations

 

The following tables set forth our results of operations for the periods presented as a percentage of net revenue for those periods (certain items may not foot due to rounding). The period-to-period comparison of financial results is not necessarily indicative of future results.

 

     Year Ended December 31,  
     2008     2009     2010  
     (as a percentage of
revenue)
 

Consolidated Statements of Operations Data:

      

Net revenue

     100     100     100

Costs and expenses:

      

Cost of revenue (exclusive of depreciation and amortization shown separately below)

     24        22        18   

Sales and marketing

     22        22        24   

Product development

     37        33        27   

General and administrative

     16        16        14   

Depreciation and amortization

     8        10        8   
                        

Total costs and expenses

     107        103        92   
                        

Income (loss) from operations

     (7     (3     8   

Other income (expense), net

     2        0        0   
                        

Income (loss) before income taxes

     (5     (3     8   

Provision for income taxes

     0        1        1   
                        

Net income (loss)

     (6 )%      (3 )%      6
                        

 

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Years Ended December 31, 2008, 2009 and 2010

 

Net Revenue

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

Net revenue by product:

          

Hiring solutions

   $ 17,352      $ 36,136      $ 101,884        108     182

Marketing solutions

     25,972        38,278        79,309        47        107   

Premium subscriptions

     35,449        45,713        61,906        29        35   
                            

Total

   $ 78,773      $ 120,127      $ 243,099        52     102
                            

Percentage of net revenue by product:

          

Hiring solutions

     22     30     42    

Marketing solutions

     33        32        33       

Premium subscriptions

     45        38        25       
                            

Total

     100     100     100    
                            

 

During 2008, 2009 and 2010, we focused on revenue growth across all of our products. While our revenue was primarily driven by sales of our premium subscriptions, we expanded our solution offerings during this period and made significant investments in our field sales organization to promote our hiring and marketing solutions. As a result, during 2009 and 2010, revenue attributable to our premium subscriptions declined as a percentage of our total net revenue.

 

2009 Compared to 2010. Total net revenue increased $123.0 million, or 102%, from 2009 to 2010. Net revenue from our hiring solutions increased $65.7 million, or 182%, as a result of an overall increase in professional hiring demand and further market penetration of our LinkedIn Corporate Solutions product, as evidenced by the 144% increase in the number of LinkedIn Corporate Solutions customers from 2009 to 2010. Net revenue from our marketing solutions increased $41.0 million, or 107%, as a result of an increase in customers’ overall online advertising budgets and improved productivity from our expanded field sales organization. Net revenue from our premium subscriptions increased $16.2 million, or 35%, during the same period as a result of an increase in the number of our premium subscribers and a reduction in cancellations from current customers.

 

2008 Compared to 2009. Total net revenue increased $41.4 million, or 52%, from 2008 to 2009. Net revenue from our hiring solutions and premium subscriptions increased primarily as a result of higher productivity from our expanded field sales organization as well as an increase in the number of subscribers of our premium subscriptions. To a lesser extent, net revenue from our hiring solutions increased as a result of the fact that we had a full year of sales of LinkedIn Corporate Solutions in 2009, as we had only recently introduced that solution during the last half of 2008. From 2008 to 2009, the number of LinkedIn Corporate Solutions customers increased approximately 85%. Finally, net revenue from our marketing solutions increased primarily as a result of an increase in the number of advertisements displayed on our website and higher productivity from our expanded field sales organization.

 

Cost of Revenue

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

Cost of revenue

   $ 18,589      $ 25,857      $ 44,826        39     73

Percentage of net revenue

     24     22     18    

Headcount (at period end):

     73        86        141        18     64

 

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2009 Compared to 2010. Cost of revenue increased $19.0 million, or 73%, from 2009 to 2010. The increase was primarily attributable to increases in headcount related expenses of $5.0 million, in part as a result of growth in our international operations, web hosting service expenses of $3.5 million, certain uncollected sales and VAT taxes of $3.1 million, consulting and outside services expenses of $1.6 million, data center equipment maintenance expenses of $2.4 million, and facility allocations of $1.9 million.

 

2008 Compared to 2009. Cost of revenue increased $7.3 million, or 39%, from 2008 to 2009. The increase was primarily attributable to an increase of $3.1 million in web hosting service expenses, an increase of $1.5 million in product related costs coupled with an increase in headcount related expenses of $1.3 million as we hired more employees to support the growth of our business.

 

Sales and Marketing

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

Sales and marketing

   $ 16,986      $ 26,847      $ 58,978        58     120

Percentage of net revenue

     22     22     24    

Headcount (at period end):

     68        125        313        84     150

 

2009 Compared to 2010. Sales and marketing expenses increased $32.1 million, or 120%, from 2009 to 2010. The increase was primarily attributable to an increase in headcount related expenses of $21.2 million as we expanded our field sales organization. We also experienced increases in facility allocations of $5.5 million, marketing and public relations expenses of $3.1 million, and consulting and outside services expenses of $1.5 million.

 

2008 Compared to 2009. Sales and marketing expenses increased $9.9 million, or 58%, from 2008 to 2009. The increase was primarily attributable to an increase in headcount related expenses of $6.7 million as a result of continued expansion of our field sales organization to promote sales of our marketing solutions and drive the growth of our hiring solutions and, to a lesser extent, increases of $0.6 million in travel expenses and $0.4 million in expenses related to marketing and branding activities.

 

Product Development

 

     Year Ended December 31,     2007 to
2008 %
Change
    2008 to
2009 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

Product development

   $ 29,366      $ 39,444      $ 65,104        34     65

Percentage of net revenue

     37     33     27    

Headcount (at period end):

     155        207        383        34     85

 

2009 Compared to 2010. Product development expenses increased $25.7 million, or 65%, from 2009 to 2010. The increase was primarily attributable to an increase in headcount related expenses of $17.4 million as a result of our focus on developing new features and products to increase member growth and engagement. We also experienced increases in facility allocations of $6.0 million and consulting expenses of $1.4 million.

 

2008 Compared to 2009. Product development expenses increased $10.1 million, or 34%, from 2008 to 2009. The increase was primarily attributable to an increase in headcount related expenses of $7.4 million as a result of hiring software engineers to further develop new features and products.

 

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General and Administrative

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

General and administrative

   $ 12,976      $ 19,480      $ 35,064        50     80

Percentage of net revenue

     16     16     14    

Headcount (at period end):

     42        62        153        48     147

 

2009 Compared to 2010. General and administrative expenses increased $15.6 million, or 80%, from 2009 to 2010. The increase was primarily a result of an increase in headcount related expenses of $16.1 million to support our overall growth. We also experienced an increase in facilities related costs of $7.6 million and expenses for consulting and outside services of $3.1 million. These increases were partially offset by facility allocations of $13.4 million.

 

2008 Compared to 2009. General and administrative expenses increased $6.5 million, or 50%, from 2008 to 2009. The increase was primarily attributable to an increase in headcount related expenses of $3.6 million in order to support increased operations, an increase of $2.2 million in expenses for consulting and outside services, an increase of $1.7 million for audit, tax and legal fees, and an increase of $1.5 million for facilities related costs. These increases were partially offset by facility allocations of $3.2 million.

 

Depreciation and Amortization

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010      
     (dollars in thousands)              

Depreciation and amortization

   $ 6,365      $ 11,854      $ 19,551        86     65

Percentage of net revenue

     8     10     8    

 

2009 Compared to 2010. Depreciation and amortization expenses increased $7.7 million, or 65%, from 2009 to 2010. The increase was primarily the result of our investment in expanding our technology infrastructure to support continued growth in our member base, particularly in the last half of 2010.

 

2008 Compared to 2009. Depreciation and amortization expenses increased $5.5 million, or 86%, from 2008 to 2009, primarily as a result of additional capital expenditures to build out our technology infrastructure. Although purchases of property, equipment and software decreased from 2008 to 2009, depreciation and amortization expenses increased as there was a full year of depreciation related to our significant capital expenditures in 2008 and continued investments in 2009.

 

Other Income (Expense), Net

 

     Year Ended December 31,  
     2008      2009     2010  
     (in thousands)  

Interest income

   $ 1,219       $ 350      $ 64   

Transaction gain (loss) on foreign exchange

     33         51        (405

Other non-operating income (loss), net

     25         (171     (269
                         

Total other income (expense), net

   $ 1,277       $ 230      $ (610
                         

 

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2009 Compared to 2010. Other income (expense), net decreased $0.8 million, or 365%, from 2009 to 2010. The decrease in other income, net was largely driven by net transaction losses on foreign exchange, coupled with a decrease in interest income as a result of lower short-term interest rates.

 

2008 Compared to 2009. Other income, net decreased $1.0 million, or 82%, from 2008 to 2009, primarily as a result of a decrease in short-term interest rates coupled with a mark-to-market adjustment of a preferred stock warrant recorded within other non-operating (loss) income, net.

 

Income Taxes

 

     Year Ended
December 31,
 
     2008      2009      2010  
     (in thousands)  

Provision for income taxes

   $ 290       $ 848       $ 3,581   

 

2009 Compared to 2010. Income tax expense increased $2.7 million from 2009 to 2010. This increase was primarily attributable to our geographic mix of income and the significant increase in pre-tax income from a pre-tax loss of $3.1 million for 2009 to pre-tax income of $19.0 million for 2010. The effective tax rates as of December 31, 2009 and 2010 were (27)% and 19%, respectively, with the increase resulting from the significant increase in pre-tax income in 2010 compared to 2009.

 

2008 Compared to 2009. Income tax expense increased $0.6 million from 2008 to 2009, primarily as a result of a decrease in pre-tax loss in 2009 compared to 2008. In 2009, we recorded income taxes that were principally attributable to Federal alternative minimum tax, California taxes, foreign taxes and other corporate taxes. The effective tax rates as of December 31, 2008 and December 31, 2009 were (7)% and (27)%, respectively. The negative effective tax rates are due to our pre-tax losses in both 2008 and 2009. The change in the rate is primarily attributable to the increase in non-deductible stock-based compensation amounts in 2009 compared to 2008.

 

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Quarterly Results of Operations Data

 

The following tables set forth our unaudited quarterly consolidated statements of operations data and our unaudited statements of operations data as a percentage of net revenue for each of the eight quarters ended December 31, 2010 (certain items may not foot due to rounding). We have prepared the quarterly data on a consistent basis with the audited consolidated financial statements included in this prospectus. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

    For the Three Months Ended  
    Mar 31,
2009
    Jun 30,
2009
    Sep 30,
2009
    Dec 31,
2009
    Mar 31,
2010
    Jun 30,
2010
    Sep 30,
2010
    Dec 30,
2010
 
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

               

Net revenue

  $ 23,242      $ 27,754      $ 29,798      $ 39,333      $ 44,716      $ 54,895      $ 61,792      $ 81,696   

Costs and expenses:

               

Cost of revenue (exclusive of depreciation and amortization shown separately below) (1)

    5,597        6,025        6,399        7,836        8,305        9,842        11,835        14,844   

Sales and marketing (1)

    5,331        5,936        6,310        9,270        10,454        13,055        14,831        20,638   

Product development (1)

    8,547        8,747        10,013        12,137        12,141        14,822        17,188        20,953   

General and administrative (1)

    3,908        4,042        4,881        6,649        6,672        7,667        9,092        11,633   

Depreciation and amortization

    2,499        2,788        3,112        3,455        3,940        4,201        4,845        6,565   
                                                               

Total costs and expenses

    25,882        27,538        30,715        39,347        41,512        49,587        57,791        74,633   
                                                               

Income (loss) from operations

    (2,640     216        (917     (14     3,204        5,308        4,001     

 

7,063

  

Other income (expense), net

    90        312        (43     (129     (346     (357     434        (341
                                                               

Income (loss) before income taxes

    (2,550     528        (960     (143     2,858        4,951        4,435        6,722   

Provision (benefit) for income taxes

    370        (107     136        449        1,043        658        475        1,405   
                                                               

Net income (loss)

  $ (2,920   $ 635      $ (1,096   $ (592   $ 1,815      $ 4,293      $ 3,960      $ 5,317   
                                                               
               

Net income (loss) attributable to common stockholders

  $ (2,920   $ —        $ (1,096   $ (592   $ —        $ 938      $ 915      $ 1,576   
                                                               

Net income (loss) per share attributable to common stockholders:

               

Basic

  $ (0.07   $ 0.00      $ (0.03   $ (0.01   $ 0.00      $ 0.02      $ 0.02      $ 0.04   
                                                               

Diluted

  $ (0.07   $ 0.00      $ (0.03   $ (0.01   $ 0.00      $ 0.02      $ 0.02      $ 0.03   
                                                               

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:

               

Basic

    41,385        40,461        41,253        41,632        41,966        42,232        42,515        43,058   
                                                               

Diluted

    41,385        41,346        41,253        41,632        44,228        45,624        46,601        49,372   
                                                               

 

(1)Stock-based compensation included in above line items:

 

       

Cost of revenue

  $ 79      $ 74      $ 75      $ 142      $ 89      $ 90      $ 122      $ 138   

Sales and marketing

    161        137        160        199        250        277        317        381   

Product development

    519        546        581        700        690        675        790        1,093   

General and administrative

    668        619        687        805        905        913        1,002        1,100   
                                                               

Total stock-based compensation

  $ 1,427      $ 1,376      $ 1,503      $ 1,846      $ 1,934      $ 1,955      $ 2,231      $ 2,712   
                                                               

 

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     For the Three Months Ended  
     Mar 31,
2009
    Jun 30,
2009
    Sep 30,
2009
    Dec 31,
2009
    Mar 31,
2010
    Jun 30,
2010
    Sep 30,
2010
    Dec 31,
2010
 
     (as a percentage of revenue)  

Consolidated Statements of Operations Data:

                

Net revenue

     100     100     100     100     100     100     100     100
                                                                

Costs and expenses:

                

Cost of revenue

     24        22        21        20        19        18        19        18   

Sales and marketing

     23        21        21        24        23        24        24        25   

Product development

     37        32        34        31        27        27        28        26   

General and administrative

     17        15        16        17        15        14        15        14   

Depreciation and amortization

     11        10        10        9        9        8        8        8   
                                                                

Total costs and expenses

     111        99        103        100        93        90        94        91   
                                                                

Income (loss) from operations

     (11     1        (3     (0     7        10        6        9   

Other income (expense), net

     0        1        (0     (0     (1     (1     1        (0
                                                                

Income (loss) before income taxes

     (11     2        (3     (0     6        9        7        8   

Provision (benefit) for income taxes

     2        (0     0        1        2        1        1        2   
                                                                

Net income (loss)

     (13 )%      2     (4 )%      (2 )%      4     8     6     7
                                                                

 

     For the Three Months Ended  
     Mar 31,
2009
     Jun 30,
2009
     Sep 30,
2009
     Dec 31,
2009
     Mar 31,
2010
     Jun 30,
2010
     Sep 30,
2010
     Dec 31,
2010
 
     (in thousands)  

Additional Financial Data:

                       

Net revenue by product:

                       

Hiring solutions

   $ 6,277       $ 8,113       $ 9,363       $ 12,383       $ 16,929       $ 21,723       $ 27,274       $ 35,958   

Marketing solutions

     6,103         8,727         8,990         14,458         14,226         18,308         18,836         27,939   

Premium subscriptions

     10,862         10,914         11,445         12,492         13,561         14,864         15,682         17,799   
                                                                       

Total

   $ 23,242       $ 27,754       $ 29,798       $ 39,333       $ 44,716       $ 54,895       $ 61,792       $ 81,696   
                                                                       
     For or At the Three Months Ended  
     Mar 31,
2009
     Jun 30,
2009
     Sep 30,
2009
     Dec 31,
2009
     Mar 31,
2010
     Jun 30,
2010
     Sep 30,
2010
     Dec 31,
2010
 
     (in thousands, except customer and headcount data)  

Other Financial and Operational Data:

                       

Adjusted EBITDA (1)

   $ 1,286       $ 4,380       $ 3,698       $ 5,287       $ 9,078       $ 11,464       $ 11,077       $ 16,340   

Number of registered members (at period end)

     37,335         42,012         48,004         55,111         64,177         71,825         80,553         90,437   

LinkedIn Corporate Solutions customers (at period end)

     1,008         1,116         1,260         1,585         1,827         2,306         2,849         3,865   

Headcount (at period end):

                       

United States

     334         357         398         454         531         636         775         872   

International

     14         17         22         26         41         57         87         118   
                                                                       

Total

     348         374         420         480         572         693         862         990   
                                                                       

 

  (1)   We define adjusted EBITDA as net income (loss), plus: provision for income taxes, other (income) expense, net, depreciation and amortization, and stock-based compensation. Please see “Adjusted EBITDA” in the section titled “Selected Consolidated Financial Data” for more information.

 

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     For the Three Months Ended  
     Mar 31,
2009
    Jun 30,
2009
    Sep 30,
2009
    Dec 31,
2009
    Mar 31,
2010
     Jun 30,
2010
     Sep 30,
2010
    Dec 31,
2010
 
     (in thousands)  

Reconciliation of adjusted EBITDA:

                  

Net income (loss)

   $ (2,920   $ 635      $ (1,096   $ (592   $ 1,815       $ 4,293       $ 3,960      $ 5,317   

Provision (benefit) for income taxes

     370        (107     136        449        1,043         658         475        1,405   

Other (income) expense, net

     (90     (312     43        129        346         357         (434     341   

Depreciation and amortization

     2,499        2,788        3,112        3,455        3,940         4,201         4,845        6,565   

Stock-based compensation

     1,427        1,376        1,503        1,846        1,934         1,955         2,231        2,712   
                                                                  

Adjusted EBITDA

   $ 1,286      $ 4,380      $ 3,698      $ 5,287      $ 9,078       $ 11,464       $ 11,077      $ 16,340   
                                                                  

 

Net revenue increased sequentially in all quarters presented, primarily as a result of increasing the number of customers that purchased our hiring solutions and premium subscriptions, as well as increasing the number of advertisements for our marketing solutions. In general, net revenue from our hiring and marketing solutions are stronger in the fourth quarter due to higher levels of Internet usage and online commerce and advertising towards the end of the year, and net revenue from our marketing solutions is typically lower during the third quarter as Internet usage generally slows during the summer months. While we believe that these seasonal trends have affected and will continue to affect our quarterly results, our rapid growth in operations has masked seasonal trends to date. We believe that our business may become more seasonal in the future.

 

Our cost of revenue has increased sequentially in absolute dollars and slightly decreased as a percentage of revenue.

 

Our sales and marketing expenses increased sequentially in absolute dollars during 2009 as a result of our focus on expanding our field sales organization. During 2010, we continued our investment in headcount and experienced sequential increases in absolute dollars in sales and marketing expenses.

 

Our product development expenses increased sequentially in absolute dollars during 2009 and 2010, as we continued to invest in hiring employees and utilizing outside resources to improve our current solutions and develop new features and products.

 

Our general and administrative expenses increased sequentially in absolute dollars during 2009 and 2010, as we invested in our infrastructure to support our growth in operations by hiring employees and utilizing outside consultants on project initiatives, including international expansion efforts.

 

Our depreciation and amortization expenses increased sequentially in absolute dollars as we invested in computers for new employees, servers and related equipment for our service offerings, leasehold improvements primarily related to our corporate headquarters in Mountain View, California and as a result of increases in capitalized website and internal-use software development costs.

 

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Liquidity and Capital Resources

 

     Year Ended December 31,  
     2008     2009     2010  
     (in thousands)  

Consolidated Statements of Cash Flows Data:

      

Purchases of property and equipment

   $ 19,579      $ 13,279      $ 50,026   

Depreciation and amortization

     6,365        11,854        19,551   

Cash flows provided by operating activities

   $ 9,154      $ 21,360      $ 54,353   

Cash flows used in investing activities

     (20,485     (13,044     (55,633

Cash flows provided by financing activities

     73,918        1,030        4,325   

 

As of December 31, 2010, we had cash and cash equivalents of $93.0 million. Cash and cash equivalents consist of cash and money market funds. We did not have any short-term or long-term investments.

 

Prior to 2009, we financed our operations and capital expenditures through private sales of convertible preferred stock. Specifically, we received an aggregate of $15.4 million in net proceeds from the issuance of Series A and Series B convertible preferred stock in 2003 and 2004. During 2007 and 2008, we received additional net proceeds of $12.7 million and $75.3 million from the issuance of Series C and Series D redeemable convertible preferred stock, respectively. Since 2009, we have been able to finance our operations, including capital expenditures and international expansion, through cash flow from operating activities. In 2011, our philosophy is to continue to invest for long-term growth. We believe that our existing cash and cash equivalents balance together with cash generated from operations and the net proceeds we receive from this offering will be sufficient to meet our working capital expenditure requirements for at least the next 12 months.

 

Operating Activities

 

Operating activities provided $54.4 million of cash in 2010, primarily resulting from our improved operating performance. The cash flow from operating activities primarily resulted from changes in our operating assets and liabilities, with deferred revenue increasing $39.5 million and accounts payable and accrued liabilities increasing $15.6 million, partially offset by an increase in accounts receivable of $35.7 million. The increase in our deferred revenue and accounts receivable was primarily due to our revenue growth in 2010 as compared to 2009. The increase in accounts payable and accrued liabilities reflects timing of payments due to the growth in our business activities. We had net income in 2010 of $15.4 million, which included non-cash depreciation and amortization of $19.6 million and non-cash stock-based compensation of $8.8 million.

 

Operating activities provided $21.4 million of cash in 2009, primarily resulting from our improved operating performance. The cash flow from operating activities primarily resulted from changes in our operating assets and liabilities, with accounts payable and accrued liabilities increasing $8.6 million and deferred revenue increasing $10.6 million, partially offset by an increase in accounts receivable of $9.8 million, and an increase of $2.9 million in prepaid expenses and other assets and deferred commissions. The increase in our deferred revenue and accounts receivable was primarily due to our revenue growth in 2009 as compared to 2008. The increase in accounts payable and accrued liabilities reflects timing of payments due to the growth in our business activities. We had a net loss in 2009 of $4.0 million, which included non-cash depreciation and amortization of $11.9 million and non-cash stock-based compensation of $6.2 million.

 

Operating activities provided $9.2 million of cash in 2008, primarily resulting from our improved operating performance. The cash flow from operating activities primarily resulted from changes in our operating assets and liabilities, with accounts payable and accrued liabilities increasing $6.8 million and deferred revenue increasing $6.8 million, partially offset by an increase in accounts receivable of $10.3 million, and an increase of $1.5 million in prepaid expenses and other assets and deferred commissions. The increase in our deferred revenue and

 

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accounts receivable was primarily due to our revenue growth in 2008 as compared to 2007. The increase in accounts payable and accrued liabilities reflects timing of payments due to the growth in our business activities. We had a net loss in 2008 of $4.5 million, which included non-cash depreciation and amortization of $6.4 million and non-cash stock-based compensation of $4.6 million.

 

Investing Activities

 

Our primary investing activities have consisted of purchases of property and equipment, and more specifically, our investment to build out our data centers. We also continued to invest in technology hardware to support our growth, software to support website functionality development, website operations and our corporate infrastructure. Purchases of property and equipment may vary from period to period due to the timing of the expansion of our operations and website and internal-use software development. We expect to continue to invest in property and equipment and development of software in 2011 and thereafter.

 

In July 2010, we acquired all of the assets of mSpoke, Inc. for $560,000. In September 2010, we acquired all of the outstanding equity of ChoiceVendor, Inc. for $3.9 million, net of cash acquired. In January 2011, we acquired all of the issued and outstanding capital stock of CardMunch, Inc. for $1.7 million, net of cash acquired.

 

Financing Activities

 

Our financing activities have consisted primarily of net proceeds from the issuance of common stock and preferred stock partially offset by the repurchase of founders’ stock and common stock.

 

Off Balance Sheet Arrangements

 

We did not have any off balance sheet arrangements in 2008, 2009 or 2010.

 

Contractual Obligations

 

We lease our office facilities in Mountain View, California under an operating lease agreement that expires in 2015. We do not have any debt or material capital lease obligations, and all of our property, equipment and software have been purchased with cash. We have no material long-term purchase obligations outstanding with any vendors or third parties. Our future minimum payments under non-cancelable operating leases for office facilities are as follows as of December 31, 2010:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 - 3 Years      3 - 5 Years      More Than
5 Years
 
                   (in thousands)                

Operating lease obligations

   $ 18,399      $ 4,626       $ 12,531       $ 1,242       $ —     

 

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

 

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We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

 

We believe that the assumptions and estimates associated with revenue recognition, website and internal-use software development costs, income taxes and stock-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, please see Note 2 of the accompanying notes to our consolidated financial statements.

 

Revenue Recognition

 

A majority of our arrangements for hiring solutions and marketing solutions include multiple deliverables. In accordance with recent authoritative guidance on revenue recognition, we allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price method in accordance with the selling price hierarchy, which includes: (1) vendor-specific objective evidence, or VSOE, if available; (2) third-party evidence, or TPE, if vendor-specific objective evidence is not available; and (3) best estimate of selling price, or BESP, if neither VSOE nor TPE is available.

 

VSOE. We determine VSOE based on our historical pricing and discounting practices for the specific solution when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. We have not historically priced our marketing solutions or certain products in our hiring solutions within a narrow range. As a result, we have only used VSOE to allocate the selling price of deliverables in limited circumstances.

 

TPE. When VSOE cannot be established for deliverables in multiple element arrangements, we apply judgment with respect to whether we can establish selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of services with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.

 

BESP. When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the service were sold on a stand-alone basis. BESP is generally used to allocate the selling price to deliverables in our multiple element arrangements. We determine BESP for deliverables by considering multiple factors including, but not limited to, prices we charge for similar offerings, sales volume, geographies, market conditions, competitive landscape and pricing practices.

Because we generally have neither VSOE nor TPE for our hiring solutions and marketing solutions deliverables, the allocation of revenue has been based on our BESPs. The process for determining our BESP for deliverables without VSOE or TPE involves management’s judgment. Our process considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors that we considered in developing our BESPs include prices we charge for similar offerings, sales volume, geographies and historical pricing practices. If the facts and circumstances underlying the factors we considered change or should future facts and circumstances lead us to consider additional factors, our BESPs could change in future periods.

 

Website and Internal-Use Software Development Costs

 

We capitalize certain costs related to the development of our website or software developed for internal-use. In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary

 

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development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally estimated to be two to three years. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within product development expenses on our consolidated statements of operations. Costs incurred for enhancements that are expected to result in additional features or functionality are capitalized and expensed over the estimated useful life of the enhancements, generally two or three years.

 

Income Taxes

 

We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

 

We also provide reserves as necessary for uncertain tax positions taken on or tax filings. First, we determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Second, based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement we recognize any such differences as a liability. Because of our net operating loss carryforwards, none of the unrecognized tax benefits through December 31, 2010, if recognized, would affect our effective tax rate. If the unrecognized tax benefit as of December 31, 2010 is recognized, approximately $2.6 million would decrease the effective tax rate.

 

Stock-Based Compensation

 

We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

 

Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows:

 

   

Fair Value of Our Common Stock. Because our stock is not publicly traded, we must estimate the fair value of common stock, as discussed in “Common Stock Valuations” below.

 

   

Expected Term. The expected term was estimated using the simplified method allowed under SEC guidance.

 

   

Volatility. As we do not have a trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. We did not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies

 

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until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

   

Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

 

   

Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

 

If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

 

The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:

 

     Year Ended
December 31,
 
         2008             2009           2010      

Volatility

     70     67     58

Expected dividend yield

                     

Risk-free rate

     3.14     2.37     2.15

Expected term (in years)

     6.08        6.01        6.08   

 

Common Stock Valuations

 

The fair value of the common stock underlying our stock options was determined by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we use in the valuation model are based on future expectations combined with management judgment. In the absence of a public trading market, our board of directors with input from management exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

   

the prices, rights, preferences and privileges of our preferred stock relative to the common stock;

 

   

the prices of our preferred stock sold to outside investors in arms-length transactions;

 

   

our operating and financial performance;

 

   

current business conditions and projections;

 

   

the hiring of key personnel;

 

   

the history of the company and the introduction of new products and services;

 

   

our stage of development;

 

   

the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, given prevailing market conditions;

 

   

any adjustment necessary to recognize a lack of marketability for our common stock;

 

   

the market performance of comparable publicly traded companies; and

 

   

the U.S. and global capital market conditions.

 

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We granted stock options with the following exercise prices between January 1, 2009 and December 31, 2010:

 

Option Grant Dates

   Number of
Shares
Underlying
Options
    Exercise
Price Per
Share
     Common Stock
Fair Value Per
Share at
Grant Date
 

February 2009

     5,166,362 (1)    $ 2.32       $ 2.32   

April 2009

     75,500        2.32         2.32   

June 2009

     387,000        2.32         2.32   

August 2009

     609,000        2.32         2.32   

September 2009

     719,500        3.50         3.50   

November 2009

     2,556,000        3.50         3.50   

February 2010

     1,361,450        4.80         4.80   

June 2010

     1,654,522        6.20         6.20   

September 2010

     1,459,266        8.27         8.27   

November 2010

     361,675        8.97         8.97   

December 2010

     445,820        14.46         14.46   

 

  (1)   Includes 2,429,750 stock options that were repriced on a one-for-one basis to $2.32 per share. Please see the section below titled “Stock Option Repricing.”

 

Based upon the assumed initial public offering price of $         per share, the aggregate intrinsic value of options outstanding as of December 31, 2010 was $         million, of which $         million related to vested options and $         million related to unvested options.

 

In order to determine the fair value of our common stock underlying option grants, we first determined our business enterprise value, or BEV, and then allocated the BEV to each element of our capital structure (preferred stock, common stock, warrants and options). Our BEV was estimated using a combination of two generally accepted approaches: the income approach using the discounted cash flow method, or DCF, and the market-based approach using the comparable company method. The DCF method estimates enterprise value based on the estimated present value of future net cash flows the business is expected to generate over a forecasted period and an estimate of the present value of cash flows beyond that period, which is referred to as terminal value. The estimated present value is calculated using a discount rate known as the weighted average cost of capital, which accounts for the time value of money and the appropriate degree of risks inherent in the business. The market-based approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. These multiples are then applied to our financial metrics to derive a range of indicated values. Once calculated, the discounted cash flow and comparable company methods are then weighted. In allocating the total equity value between preferred and common stock, we assumed that the preferred stock would convert to common stock. Our indicated BEV at each valuation date was allocated to the shares of preferred stock, common stock, warrants and options, using either an option pricing method, or OPM, and/or a probability weighted method, or PWERM. Estimates of the volatility of our common stock were based on available information on the volatility of common stock of comparable, publicly traded companies.

 

Significant factors considered by our board of directors in determining the fair value of our common stock at these grant dates include:

 

February 2009

 

In 2008, we issued and sold 6,599,987 shares of our Series D preferred stock at $11.47 per share. However, by February 2009, the U.S. and global economies had been severely damaged by the global financial crisis of the fall of 2008, which resulted in a significant decrease in our valuation and the market values of comparable companies. As a result of these factors, and the weakness we experienced in both the

 

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third and fourth quarters of 2008, we significantly lowered our financial forecast and expectations for growth in 2009 and implemented a reduction in force of approximately 10% in October 2008. As we had not granted any options since August 2008, we performed a contemporaneous valuation of our common stock as of December 24, 2008 and determined the fair value to be $2.32 per share as of such date. Our valuation determined a BEV by weighting the income approach at 60% and the market-based approach at 40%. Our BEV reflected a non-marketability discount of 27%, which was allocated to the common stock on a non-controlling interest basis, based on a liquidity event expected to occur within approximately two years. Based on this valuation and the factors described above, our board of directors granted stock options with an exercise price of $2.32 per share.

 

April 2009

 

Between January 2009 and April 2009, the U.S. economy continued to be weak and access to the capital and debt markets remained challenging. U.S. financial and stock markets continued to decline before beginning their recovery in March 2009. The enterprise values of our comparable companies began to recover during this period. We experienced a sequential revenue decline from $24.6 million for the quarter December 31, 2008 to $23.2 million for the quarter ended March 31, 2009. The number of registered members grew to 37.3 million as of March 31, 2009. During the quarter ended March 31, 2009, we hired modestly, only adding 10 employees. In light of the continued weakness in our business and the U.S. and global economies, we determined the fair value of our common stock had not changed from our valuation as of December 24, 2008. Based on the prior valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $2.32 per share.

 

June 2009 and August 2009

 

Between May 2009 and August 2009, the U.S. economy began to stabilize and the U.S. stock markets improved. As a result, the enterprise values of our comparable companies increased. We experienced sequential revenue growth, generating $27.8 million for the quarter ended June 30, 2009 compared to $23.2 million for the quarter ended March 31, 2009. The number of registered members grew to 42.0 million as of June 30, 2009, and we hired 26 employees. In light of continued uncertainty surrounding the U.S. and global economies, we determined the fair value of our common stock had not increased from our valuation as of December 24, 2008. Based on the prior valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $2.32 per share during this period.

 

September 2009 and November 2009

 

Between September 2009 and November 2009, the U.S. economy and financial and stock markets continued to recover and the capital and debt markets continued to improve. We experienced sequential revenue growth, generating $29.8 million for the quarter ended September 30, 2009 compared to $27.8 million for the quarter ended June 30, 2009. Our number of registered members grew to 48.0 million as of September 30, 2009. Going into the fourth quarter of 2009, we began to experience continued strength in revenue generated from sales of our marketing solutions, LinkedIn Corporate Solutions and job posting products. In anticipation of expected future growth, we continued to increase our hiring efforts, and we raised our year-end headcount target to 520 employees. In light of the strength we were beginning to experience in our business, we performed a contemporaneous valuation of our common stock as of September 15, 2009 and determined the fair value of our common stock to be $3.50 per share as of such date. We reduced our assumption for the time to a liquidity event to occur to approximately 15 months and reduced our non-marketability discount from 27% to 15%. Based on this valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $3.50 per share during this period.

 

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February 2010

 

Between December 2009 and February 2010, the U.S. economy and the financial and stock markets continued their recovery. We experienced sequential revenue growth, generating $39.3 million for the quarter ended December 31, 2009 compared to $29.8 million for the quarter ended September 30, 2009. Our number of registered members grew to 55.1 million as of December 31, 2009. During this period, we prepared a significant upward revision of our financial forecast. Given our improved performance, we performed a contemporaneous valuation of our common stock as of February 15, 2010 and determined the fair value of our common stock to be $4.80 per share. We reduced our non-marketability discount from 15% to 12.5% based on a reduction in the assumed time to a liquidity event to occur to approximately one year. Based on this valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $4.80 per share.

 

June 2010

 

Between March 2010 and June 2010, the U.S. economy and the financial and stock markets continued their recovery. We experienced sequential revenue growth, generating $44.7 million for the quarter ended March 31, 2010 compared to $39.3 million for the quarter ended December 31, 2009. Our number of registered members grew to 64.2 million as of March 31, 2010. Based on the strength we were seeing in our business, we began to accelerate our investment in anticipation of future growth, primarily in expanding the size of our field sales and product development organizations. We also increased our year-end projected headcount from 869 to 973. In light of our improved financial performance, we performed a contemporaneous valuation of our common stock as of May 7, 2010 and determined the fair value of our common stock to be $6.20 per share. Our BEV reflected a non-marketability discount of 10% based on a liquidity event expected to occur within approximately one year. Based on this valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $6.20 per share.

 

September 2010

 

Between July 2010 and September 2010, the U.S. economy and the financial and stock markets continued their recovery after a brief decline in August 2010. We experienced sequential revenue growth, generating $54.9 million for the quarter ended June 30, 2010 compared to $44.7 million for the quarter ended March 31, 2010. Our number of registered members grew to 71.8 million as of June 30, 2010. In light of our recent performance, we performed a contemporaneous valuation of our common stock as of September 17, 2010 and determined the fair value of our common stock to be $8.27 per share. Our BEV reflected the introduction of a PWERM, to estimate the fair value of our common stock in addition to the OPM as we began preparations for a potential initial public offering, or IPO. Based on this valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $8.27 per share.

 

November 2010

 

During the fall of 2010, the U.S. economy and the financial and stock markets continued their recovery. We experienced sequential revenue growth, generating $61.8 million for the quarter ended September 30, 2010, compared to $54.9 million for the quarter ended June 30, 2010. Our number of registered members grew to 80.6 million as of September 30, 2010. In light of our recent performance, we performed a contemporaneous valuation of our common stock as of October 15, 2010, and determined the fair value of our common stock to be $8.97 per share. Our BEV reflected a non-marketability discount of 9% based on a liquidity event expected to occur within approximately one year. Based on this valuation and the factors discussed above, our board of directors granted stock options with an exercise price of $8.97 per share.

 

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December 2010

 

In November 2010, the recovery of the U.S. economy and the financial and stock markets began to accelerate. We achieved record results in our financial and operating metrics in November 2010, with accelerating year-over-year growth across our business. We made significant improvements to our proprietary platform in anticipation of future growth and made considerable progress towards the build-out of our Santa Monica data center which, when operational, would provide for disaster recovery in the event of a catastrophic hardware failure at our Chicago data center. In light of our recent performance, we performed a contemporaneous valuation of our common stock as of November 19, 2010, and determined the fair value of our common stock to be $14.46 per share. Our BEV reflected a non-marketability discount of 7% based on a liquidity event expected to occur within approximately six months. Based on this valuation and the factors described above, our board of directors granted stock options with an exercise price of $14.46 per share.

 

Stock Option Repricing

 

In February 2009, our board of directors approved a common stock option repricing whereby previously granted and unexercised options held by current employees with exercise prices above $2.32 per share were repriced on a one-for-one basis to $2.32 per share with no modification to the vesting schedule of the previously issued options. As a result, 2,429,750 unexercised options originally granted to purchase common stock at prices ranging from $2.50 to $5.56 per share were repriced under this program.

 

We treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing is estimated to result in incremental stock-based compensation expense of $0.9 million. Expense related to vested shares was expensed on the repricing date and expense related to unvested shares is being amortized over the remaining vesting period of such stock options. The assumptions used to estimate the fair value of the original awards immediately before the modification and the fair value of the modified awards required significant judgment.

 

Quantitative and Qualitative Disclosure About Market Risk

 

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate, foreign exchange risks and inflation.

 

Interest Rate Fluctuation Risk

 

Our cash and cash equivalents consist of cash, money market funds, certificates of deposit and commercial paper. We do not have any long-term borrowings.

 

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. During 2010, we determined that the nominal difference in basis points for investing our cash and cash equivalents in longer-term investments did not warrant a change in our investment strategy. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

 

Foreign Currency Exchange Risk

 

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the British pound sterling and the euro. The volatility of exchange rates