Why LinkedIn Couldn't Fail - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Why LinkedIn Couldn’t Fail

Yesterday, shares of LinkedIn (“LNKD”) went public. The company was initially priced at $45 a share and spiked up, ending the day at $94.24. While the popular media was amazed by this, many market-watchers had a “gut feeling” that LinkedIn’s IPO could not fail.

The major Wall Street investment banks are salivating at the upcoming IPO market. Still expected to go public are Facebook and Twitter. Two potentially very large offerings. If LinkedIn’s IPO wasn’t a spectacular success, the underwriters (Morgan Stanley was lead underwriter) would face the risk of being passed over when the social media giants were ready to go public. Or worse, Facebook and Twitter may decide altogether NOT to go public.

I’m willing to bet that every Wall Street trade desk was pushing LinkedIn stock yesterday. (And most likely, large funds that purchased LinkedIn were quietly promised a piece of Facebook and Twitter’s future offerings.)

So what does the future of LinkedIn stock look like for investors who bought into the hype? Most likely the major firms will continue to support the stock in hopes of enticing the other social media companies to “strike while the iron is hot”.

However, the long term picture may not be so rosy. Professor Jay Ritter from the University of Florida published an interesting research piece that reviews all the non-ADR IPOs that at least doubled in their first day of trading from 1975 to 2004.

Take a look at the top names:

1. Va Linux (12/09/99) 697.50%
2. Globe.com (11/13/98) 606%
3. Foundry Networks (9/28/99) 525%
4. Webmethods (2/11/00) 507.50%
5. Free Markets (12/10/99) 483.33%
6. Cobalt Networks (11/05/99) 482%
7. MarketWatch.com (1/15/99) 474%,
8. Akamai Technologies (10/29/99) 458%
9. Cacheflow (11/19/99) 426.56%
10. Sycamore Networks (10/22/99) 386%.

Not a good sign when you look at where those companies are today (if they even still exist).

Here is the rest of Professor Ritter’s paper if you want to see the full list:

Big IPO Runups of 1975-2006

Comments are closed.