LinkedIn IPO: Justify my bubble

The most important Internet IPO since Google is less than 24 hours from pricing. And it's already huge.

LinkedIn sure must be getting lots of love on its IPO roadshow.

The social network for business professionals this morning increased the price range for its highly-anticipated offering by 31%, meaning that it now expects to be valued at more than $4 billion.

The Mountain View, Calif.-based company originally filed for its IPO in late January, with plans to raise $175 million. It upped the ante earlier this month, setting its terms to 7.84 million shares being offered at between $32 and $35 a piece. That would have meant a $274 million raise at the high end of its range, and an initial market cap of just over $3 billion. Now, the range has jumped to between $42 and $45 per share.

LinkedIn is expected to price the IPO after market close tomorrow, and begin trading Thursday on the NYSE under ticker symbol LNKD.

Assuming that LinkedIn prices within its new range, it will be one of the largest Internet IPOs since Google (GOOG) in 2004. And it will certainly be the most important.

LinkedIn is one of the "Big 5" private Internet companies that people point to when talking about a bubble, and will be the first to go public. The others are Facebook, Groupon, Twitter and Zynga.

All five have been heavily traded on the burgeoning secondary markets, but none have yet had their private valuations validated by retail investors with access to their financials. This matters because most secondary buyers expect to eventually liquidate their shares via a public exchange, and expect that their private purchases are being done at a discount to public pricing (a trade-off for the lack of disclosures). In some cases, some of the Big 5 have even begun restricting employee sales by issuing stock "grants," which can't be traded until the company is either taken public or sold.

Prior to LinkedIn setting its initial IPO range, its stock was trading at around $30 per share on secondary markets. That means anything within the revised range would seriously embolden those who keep scooping up shares in Facebook, etc. Anything lower could create a deep freeze.

Moreover, the other Big 5 will be watching LinkedIn very closely. Not just the pricing, but also after-market performance. There were lots of high-fives when Chinese social network RenRen (RENN) raised $743 million in its IPO two weeks ago, but some consternation as its share price keeps drifting lower. If LinkedIn can both price high and maintain its value, then other companies will use their own private market valuations as baselines during conversations with bankers.

The real question for LinkedIn and the others, however, won't be answered for several years. Is it a warm-up to the Internet market peak, which most people believe will be reached when Facebook goes public? Or is it a peak in itself, which means other companies had better strike now while the iron is hot? At least we know this isn't a new normal, because it almost never is...