This article is written by guest writer Katya Nicoleni.
I was talking to an investor in the know yesterday, mostly about tech companies and their ginormous (and often unrealistic) valuations. Inevitably we talked about LinkedIn (a site neither one of us use). Apparently this ‘in the know investor’ had a significant pre IPO (Initial Public Offering) stake of nonpublic shares, it was allotted to him for a favor he’d performed an IB (Investment Banking) friend of his. This didn’t strike me as unusual because pre IPO shares get “gifted” all the time, and IB’s miss price the shares grossly (under price) on top of this IPO underwriters and book runners pretty much openly manipulate the price of the newly listed share so that the holders of these shares make a decent profit on listing day. What caught my attention was that this ‘in the know investor’ was assured a big profit (or pop) on listing day by his IB friend and this IB friend happened to work at a street favorite bank holding IB that had sold all of its holdings in LinkedIn (essentially giving up the profit they were assuring other people). Seems kind of counter intuitive don’t you think? I mean, you know a stock is going to go up (by 150%) nonetheless you sell your whole stake before the big pop (and make a big show of your sale), why? I felt the urge to dig a little deeper and I came across some interesting (scandalous you ask? well… maybe not after 2008) news. 
The Sting: What do you need to pull of the perfect con? You’ll need a mark (retail investors), an offer (Facebook shares), a convincer (LinkedIn pop), and a blow off (massive price drop). If done right the mark doesn’t know you’ve conned him till you’ve had time to split with his money. Con artists and IB’s are necessary to keep the dumb people population down, I digress. Here is why LinkedIn is basically the convincer for Facebook (wetting everybody’s lips for the big IPO) , so that retail investors will buy Facebook shares in droves (and get slaughtered). Which IB is taking FB public? It’s a certain one that goes by the name of GS (or We’ll Sack your Men and take your Gold as they’re known on the street) GS has made a big show by dumping LinkedIn shares before they hit the market, they seemingly missed the opportunity to double their money (a measly 40 mill) but nonetheless, these are not dumb people. They know when money is on the table and they never leave it there unless…
GS is very likely going to make a few billion by taking Facebook public. But recently RenRen (another social networking site from evil China) and such have been getting listed and the post IPO prices have nose-dived, so they (IB’s) need to make sure that “Social Networking” companies they’re gonna take public are not going to get shunned by the street (at least not before they bring out the big stingers). GS cleverly leaked some FB private disclosures (that say FB makes 30% net profit), sold all LinkedIn private shares before listing to make it look like they didn’t have a hand in the 150% pop. This will ensure that marks (aka suckers, wait there is a joke in here somewhere Mark Zuck… damn) will buy in to all the coming social networking companies hoping to make a profit similar to the one they saw people get on LinkedIn only to be given the blow off (in the market, the blow off is a beautiful thing). This is a theory, one that I have gleaned from whispers of astute investors, IB players, and tech nerds. So maybe I could be wrong, maybe a company making less than 20 mill is really worth 9… I mean 10 billion 
.
The fine print of the LinkedIn prospectus shows management plans to issue millions more in stock and options to insiders — massively diluting current shareholders. LinkedIn is now valued at $10 billion. That’s 660 times last year’s net income of $15 million. Surely no one would invest in a high-risk stock like LinkedIn unless they expected strong capital gains (there are no dividends, naturally). But if you are hoping LinkedIn will rise by, say, 20% a year from here, be aware of what that would mean: In 10 years’ time, it would be valued at $62 billion. (And that ignores potential dilution from new stock and options.) If by then the stock were trading on a more reasonable multiple of, say, 20 times earnings, net income would have to be $3.1 billion. How do you get from $15 million to $3.1 billion in 10 years? 1) Wishful thinking. 2) You grow earnings by 70% a year, every year, for a decade. Good luck with that.
I’ve been trying to short the stock from my Dads account but can’t seem to do it. I’ll be shorting as soon as I can. Well I leave you with something to think about ladies and gentlemen…
ha ha. nobody i know uses linkedin. I was like WHAT IS THE BFD? insane.
so you’re saying Goldman is creating another bubble?
convincer? that is cool.
what would I have to do to get gifted private shares?
scandalous, this shit is scandalous. people just are too fucking dumb to do anything.
that poster really taked me back. the sting was a good movie!
your con artist lingo is really well defined.
nobody regulates pre IPO market?
they leave money on the table all the time….. at the hookers place or when they buy cocaine.
I don’t get it. the blow off? once you buy, if the price goes down there is nothing a buyer can do
lmfao! Ricky Boby
gorw earnings by 70% a year? THAT IS WISHFUL THINKING.
fucking joke. the PayPal mafia coupled with the Wallstreet mafia = good stock pump.
one of the worst companies that only serve as spam delivery is worth 10 billion? yeah right.
I own some shares but I can’t sell. there is a lock in period, so the stock has to keep going up…
15 million translates to 9 billion. that is super normal.
Mark…. suck…. Zuck… LMFAO!
I wish I had friends who’d give me IPO popers
bank holding IB? Sack your Men and take your Gold ? roflmao
so you’re gonna short it? isn’t that a little biased? you want the price to go down.
the sting! the best movie ever.
good writing. say something more about yourself. no one is gonna rape you!
back in the day shit like this would get people arrested. now the only people who go to jail are the fat insider info guys who make a (gasp) 40 million.. the guys who steal billions get of scott free.
I was just thinking about this. the whole GS angle is mind boggling! good thinking.
my investment manager called offering me shares. I asked him how soon I could start shorting
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shake and bake!!!! lol.
you’re saying that this is a ‘long con’ engineered by the folks at GS, who intend to use the hype from Linked in to fleece investors on Facebook? that sounds almost diabolical till you stop and think that is what Investment Banks are there for honestly!
Stocks down -1.05% from closing (in after hours trading) and -18.96% from days high. Looks like shorting was a good idea.
considering all the shit facebook is up to (hiring PR firms to sling mud at google), repeatedly ignoring user privacy, letting Zuck remain CEO I think this is something they’re capable of. fucking over investors seems like cake walk for Facebook and Zuckerberg. Fact it seems like company policy “do some evil”.
I don’t understand why people still use Facebook. I really can’t figure it out, after all the bad things the company does you would have to be a brain dead loser to still be on Facebook! same thing applies to Goldman Sachs, there are so many stories of them fucking over clients yet still people deal with them. this is the actual problem, people are fucking idiots.
@ Katya: you’re right.
@laura: A good friend of mine got screwed by an IB recently and in return for pain caused by the IB, my friends firm was given a good share of IPO profits for the troubles. this is why people still do business with IB’s.
isn’t this illegal? especially for a bank, setting a company up like this? Everyday I am surprised to see a new normal, a new low. It’s almost as though people just don’t care anymore.
there is a novelty value for this stock! A lot of people believe (rightly or wrongly) that social networking is good industry and they also believe that it’s going to keep making more and more money! Linked in is really unique because it’s a a share ‘these people’ can buy, all the other companies in this sector are closed and they are available exclusively to the Palo Alto crowd. Linked in basically gives investors exposure to this promising industry sector (social networking) and that is why the stock almost tripled on listing day. Having said that this could very well be a set up for the inevitable Facebook boom. Either way, make hay while the sun shines and the sun is shining right now. This wave could make a lot of new good and bad billionaires (think Sergey Brin Vs Mark Cuban).
the smart move here is to take the convincer off the con artist and sting them when they try to con you. basically go long linked in (which I have last night) and short when the time is right. the shares are not traded enough to short now anyway! I feel that about 108$ is massive short trigger for this stock.
stock hit $107 and then started going down…
some good writing, Katya two thumbs up
stock is down 5.15% and AH 1.35%. So a total of 6.5%, if I were running a hedge fund I could take two or three months off. btw, do you work at a fund Katya? if so you should quit, because you’d be one heck of an investigative journalist! One of the reasons I hate main stream media is because they miss things like this, they were all creaming on IPO day. I am covering my position, thanks for helping me make up my mind.