Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

LinkedIn stock slips in second trading session

May 20, 2011 |  4:02 pm

LinkedIn Corp.'s shares closed slightly lower Friday, one day after the professional-networking firm's spectacular market debut.

The stock lost $1.16, or 1.2%, to $93.09 after rocketing 109% on Thursday from its initial public offering price of $45.

The trading pattern Friday looked similar to Thursday: The stock rose early in the session, reaching a high of $107, then drifted lower the rest of the day.

Volume calmed down considerably: 8.56 million shares changed hands, down from 30.1 million on Thursday. With just 7.8 million shares sold in the IPO, some portion of the stock was flipped multiple times the last two days. That’s typical of a hot new issue, if not exactly heartening to anyone trying to be a long-term investor.

At Friday’s closing price the stock was trading at 547 times the 17 cents a share LinkedIn earned last year on $243 million in sales. (See the detailed prospectus for the IPO here.)

Linked Investors in LinkedIn obviously know they have a highly valued stock. A lofty price-to-earnings ratio has never been an obstacle when the market believes it has found the Next Big Thing -- which clearly is how Wall Street is treating social networking.

Plus, with LinkedIn warning that it won’t be profitable this year because it plans to spend aggressively to expand its franchise, investors aren’t going to be focused on the bottom line, anyway. More likely, the stock’s price trend in the near term will be determined by what LinkedIn can show in quarterly revenue growth.

It will be interesting to see how far out on a limb Wall Street analysts will go in projecting the stock's potential, once research reports begin to roll out in the next few months.

On Thursday, independent researcher Morningstar Inc. took a stab at estimating "fair value" for LinkedIn's shares based on the company's prospects, and came up with a number that won't make any  current shareholder happy: $27. And that "assumes LinkedIn extends its dominance as the preferred social-networking site for professionals," Morningstar said.

LinkedIn’s stock market value now is $8.8 billion. That’s a fraction of Google Inc.’s market value of $169 billion, and it’s a lot less than the market values of Yahoo Inc. ($21.2 billion), Juniper Networks ($20.7 billion) and Netflix Inc. ($12.9 billion), to name just a few other Internet plays.

But at $8.8 billion LinkedIn is worth more than many much older non-tech brand names, including Harley-Davidson ($8.6 billion), Textron Inc. ($6.3 billion) and Whirlpool Corp. ($6.2 billion).

-- Tom Petruno