Sunday, May 22, 2011

Thoughts on the LinkedIn IPO and its $8.8 billion valuation

After LinkedIn Corp. (US: LNKD) management shared their story with institutional investors over the past several weeks (the firm's 2010 revenue was $243 million, up about 100% from 2009, with net income of $15 million), investment bankers from Morgan Stanley, JP Morgan Chase and Bank of America priced the firm's shares at $45 a share. On Thursday, LinkedIn shares started trading and rose to an intraday high of $129. On Friday, the stock closed at $93.

MY TAKE: Regarding the stock, it is likely that 1) many institutional investors sold their allocation this week, 2) some individual investors who bought shares on Thursday are wondering why and 3) momentum traders and potential short sellers will likely drive short-term stock moves. Regarding the company, it benefits from 1) its global Internet reach, 2) a strong brand and 3) a service that many people understand and use. Debates will continue about whether the underwriters priced the offering too low and if the stock can sustain its current price. The firm's execution will have to be flawless to support its current $8.8 billon valuation.

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