The LinkedIn pop

By Felix Salmon
May 19, 2011
doing so well on the stock exchange today?

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Why is LinkedIn doing so well on the stock exchange today? At $100 per share, by one measure it’s the most expensive stock in America. Evan Newmark has one theory: it’s because the IPO price was raised, by Morgan Stanley, by $10 per share shortly before the offering was launched. By doing that, he says, they increased the size of the pop:

Strangely, jacking the price by 30% made the offering even more enticing for lots of prospective IPO buyers.

The laws of supply and demand may say the higher the price, the less the demand. But again, that’s common sense and this is Wall Street, where a higher price equals more demand, where if the other guy wants something, then you want it even more.

Does this explain why the shares rose as high as $122 apiece this morning? No: that’s mainly just a function of the fact that it’s all in the hands of the day traders and the speculators right now. And the fact that if you buy the right hot internet stock even at the very top tick of the day, you can still make a fortune over the long term.

Take Baidu, for instance, the post-bubble record holder when it comes to first-day pops. It went public in 2005 at $27 per share, and closed that day at $122.54 — a gain of more than 350%. Today, it’s trading at $134 per share. Which might not seem like much of a gain, until you realize that there was a ten-for-one stock split last year: it’s up more than ten times from that IPO-day high point.

My feeling is that LinkedIn is going to remain hot until Facebook goes public and it’s no longer the only way for most investors to buy shares in a social network. I’ve had two conversations with LinkedIn fans over the past couple of days, and I still don’t really understand what they see in the company, or the website, beyond the fact that it’s a good way of finding and vetting possible employees or business partners. Which, admittedly, is a great niche to be in, if you can monetize it somehow.

And even at a capitalization of $10 billion, LinkedIn could still be acquired quite easily by Facebook, especially after Facebook goes public. And that is going to be a hot IPO. Maybe if they price it at a $70 billion valuation, it’ll be worth $150 billion by the time the day is out.

16 comments

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Forgive me for popping the lunacy of Wall Street, but LinkedIn is nothing more than a few weeks’ work of coding at the Googleplex, to make the necessary sql databases, forms, search algorithms, et voila.

Has the world gone mad? It feels like we’re headed towards the Web2.0 bubble.

Posted by GRRR | Report as abusive

I am with GRRR.

People have gone stark raving mad. There truly are suckers born every minute.

Posted by hsvkitty | Report as abusive

Like Felix’s Groupon post, the code is the easy part – building and maintaining the network effect is not.

Without commenting on whether the stock is overpriced or not (I don’t know), it is nice to keep separate online identities. Facebook is for social and LinkedIn is more professional.

I don’t really use either service, but if I did, I’d like to segregate what I did on Friday night from what I do on Monday morning without having to tinker too much with buckets of people and filter controls.

Posted by djiddish98 | Report as abusive

“He’s on LinkedIn. He might as well be dead.” – Jack Donaghy

Posted by petertemplar | Report as abusive

i scarcely ever visit my own linkedin page. Half of my friend’s pages are outdated, some by years, so they are not updating theirs either.

When i occasionally upgrade my account for a month to contact someone out of my network, i only get a response maybe 20% of the time – my guess is because people don’t read the emails anymore. And then linkedin makes it difficult on purpose to cancel that membership, which is a huge pain in the ass (they only changed that last year it seems, wasn’t always like that)

Nobody has ever contacted me with a job offer through linkedin, although i get recruiter calls all the time (i work in the finance industry)

i think it’s a pretty rotten, undynamic website, but may be wrong target demographic, dunno. i guess i’ve never ever used monster.com either to search for a job…

Posted by tiger4 | Report as abusive

The problem is that you can’t keep professional and social separate; both are searchable through Google.

Ultimately size matters – size of the profit, that is. Everything up until profit and valuation become synchronized is just a head fake.

Posted by Curmudgeon | Report as abusive

Oh it’s definitely bubblicious in Internetville right now.

Posted by bryanX | Report as abusive

He says He is on LinkedIn and uses it regularly. Most of His contacts have up-to-date pages, and He is often notified about updates that lead to conversations or reading of web pages.

He is not on Facebook. i, however, have a Facebook page of my own. i use it only to keep track of goings-on at my local dog park. i don’t find Facebook useful or interesting. i find it inane. Most of my “friending” requests are spam that start out with something like, “Hey, guy, you’re lookin’ pretty good.” Yeah, maybe….

Then again, i’m only a dog (“IOaD” (TM)). To me, there’s not much worth sniffing on Facebook. Now, if they came out with Fessebook, i might be more interested..

Posted by samadamsthedog | Report as abusive

The company has 92 million shares, but apparently only sold 7.2 million in this offering. This reminds me of VMWare the way they are low floating the market to ensure the first day pop. Enough people are placing market buy orders for not enough share in the market to ensure it goes up. Look what happened to VMWare once the insiders could sell(although it has since recovered).

Posted by TurtleBay | Report as abusive

Hmm, the baby boom is aging. CheckedOut.com anyone?

It sounds like an old fashioned bull raid, and I think it’s excellent marketing. The market is about setting a price, and since that price has nothing to do with the company, its product or financials, playing games with the price during the IPO when it is easy to control is a great way to signal “value”. Why am I thinking of the story of the theater that hired a slowpoke ticket clerk to get a line at the box office?

One of the great investment fallacies is that there is anything more than a slight correlation between corporate performance in terms of earnings per share, the archaic ability to pay dividends, and stock price.

Posted by spiffy76 | Report as abusive

Hello….it is not about the “algorithms” or platform – it is:

1) the user base
2) ad sales
3) upgrades to premium membership

LinkedIn brought in a whopping $238m total revenue in 2010

Most use the “freemium” version.

I have not seen numbers on the user base – and each company that touts users – or better – “active” users – measures them & their value differently – I can say this:

- it is good for networking and staying in touch with old colleagues and clients
- it tends to be utilized the most by only a handful of verticals, from my observation
- its job board is decent – but expensive
- it is overrun with recruiters (not good)

and most chilling – as of IPO LI has a market cap of 4.25b on said earnings (238m) = a P:E so unrealistic it is not even funny.

(p.o.r. – the sector P:E – price to earnings ratio – is about 20 (using GOOG as example)

personally – I will not be buying.

But ‘bubble’ – NO.

Given LI’s revenue

Posted by emilymerkle | Report as abusive

uh – tiger4 – work on your game….very obvious.

Posted by emilymerkle | Report as abusive

uh – tiger4 – work on your game….very obvious.

Posted by emilymerkle | Report as abusive

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