LinkedIn IPO Creates Market Insanity

Shares in LinkedIn doubled in its stock-market debut Thursday morning—and then kept rising. And that’s good news for Facebook.

All eyes in the financial world are on the LinkedIn IPO—but not because people really care about this online networking site for job seekers and others seeking professional contacts. It’s a harbinger of things to come for a quartet of higher profile social media companies expected to go public in the second half of 2011 or 2012: Facebook, Twitter, GroupOn, and Zynga, the company behind popular time wasters such as FarmVille and Mafia Wars.

“This is a barometer IPO,” says Scott Sweet, a managing director at IPO Boutique, an IPO rating service. “LinkedIn will serve as a key price point if and when Twitter, Zynga, Facebook, and GroupOn decide to file.” The “Five Horsemen,” insiders call these four companies along with LinkedIn.

LinkedIn is like a comp in real estate: the price that will help determine the worth of homes in that same neighborhood. And its stunning debut bodes well for the other Horsemen, especially as LinkedIn is widely viewed as far more modest in size than its more high-profile neighbors in the social media sector. So what's Facebook worth? An educated guess, based on today, says more than $100 billion. (Earlier this year, Goldman appraised the company at half that for investors.)

By mid-day, the stock market had given LinkedIn a worth in excess of $10 billion—meaning its stock is already more valuable than that of Southwest Airlines, US Steel, and Macy’s.

Insiders were able to buy shares of LinkedIn at a $45 a share. When the stock debuted, though, shares started trading at $83 a share.

That meant if you were a favored client of Morgan Stanley, JPMorgan Chase, Bank of America, or any of the other big banks putting together the LinkedIn deal, you enjoyed an instant 84 percent windfall on your money. The stock price more than doubled Thursday, up $49.25 a share, or 109 percent, to close at $94.25 after earlier touching a peak of $122.70 on the New York Stock Exchange.

On Wednesday, David Menlow of IPOFinancial.com, an independent research outfit, called the $83 opening price within $2. “But to see the stock go up another 50 percent, especially at that price, is insanity,” Menlow says.

Insiders were able to buy shares of LinkedIn at a $45 a share. When the stock debuted, though, shares started trading at $83 a share.

Like Sweet, Menlow sees that as great news for the bigger boy companies waiting in queue behind LinkedIn. The market is clearly ravenous for any company that allows investors to own a piece of a social networking site—though Menlow says the hard lessons learned during the dot-com bubble mean that only established companies with significant revenues (LinkedIn booked nearly a quarter of a billion dollars last year) will enjoy this latest tech boom.

“There’ll be a very tight mesh on the screen door,” Menlow predicts. “It’s not like you’re going to see any company that can claim it’s a social networking company go public. But for the big companies like Facebook and GroupOn, the ones with a big footprint in the sand, LinkedIn’s success tells me these other big ones are going to do very well.”

Journalist Gary Rivlin is the author of five books, including Broke, USA: From Pawnshops to Poverty, Inc.—How the Working Poor Became Big Business. He has worked as a staff reporter for The New York Times, where his beats included Silicon Valley and New Orleans after Hurricane Katrina. He is a special correspondent for Newsweek and The Daily Beast.