May 22, 2011, 12:06 p.m. EDT
Disconnect from the LinkedIn IPO hype
Commentary: Don’t expect another tech-stock bubble — yet
By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch)
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Clearly, anyone who bought LinkedIn at the initial offering price is pretty pleased thus far. The stock opened at $45 and more than doubled on in its first day of trading.
That’s precisely the kind of performance that attracts people to IPOs. It’s the story the public expects when the hottest corporate names go public. Read more: LinkedIn IPO could ruin the tech sector.
But it’s not the performance that investors typically get from these stocks. For starters, you can pretty much bet that it is friends, families and investment bankers who get the IPO price; that’s especially true for LinkedIn, where the company was floating just 8% of its outstanding shares. If you were not one of the people with an opportunity to buy that sliver of IPO gold on the cheap, then you were in the masses of people buying it for a lot more and thinking there would be a greater fool to follow you into the fray and make you a quick profit.
LinkedIn — which runs a network focused on business users, and which claims 100 million users — was really the first big name in social networking to go public. Renren Inc. — known by many as China’s “Facebook” — went public in early May; after a nice initial pop, it was trading below its offering price 10 days later. FriendFinder Networks, which runs adult-oriented online sites, got no initial pop after its opening on May 10, and is down more than 40% since.
LinkedIn’s deal was considered much more important. It was the scene-setter for its still-private online peers, companies like Facebook, Twitter and Groupon. Some of the initial euphoria for the stock may have been over the excitement of being the first mainstream play for the sector.
That said, the exuberance shows a big part of the problem for the retail investor. Once the initial buzz dies down, even the hottest of companies comes back to valuations, and LinkedIn’s inflated shares are near-bursting.
Article continues: http://www.marketwatch.com/story/disconnect-from-the-linkedin-ipo-hype-2011-05-22?dist=beforebell
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