The LinkedIn pop

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.


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