Featured: Jeffrey Weiner, CEO, LinkedIn
Originally published: Jan. 13, 2012
Despite the big market advance since October -- the Nasdaq ( $COMPX ) is up 18% -- most investors who bought any of the high-profile 2011 Internet-based initial public offerings in early trading are still feeling some serious pain.
Shares of the most promising, like Groupon ( GRPN ), LinkedIn ( LNKD ) and Pandora Media ( P ), are down 33%, 32% and 44%, respectively, as of Jan. 13, from the midpoint values on the first day of trading.
But some folks made money in the social networking and Internet IPO game, and not surprisingly, they're one-percenters.
For example, anyone with a brokerage account, enough to get preferential treatment at the investment banks behind LinkedIn's IPO -- and almost by definition, one has to be affluent to have such an account -- made some decent profits. The special inside price for LinkedIn shares at the time of the IPO was $45. The stock opened at $83, and it now trades at around $69.
The hands-down winners in 2011 social networking and Internet IPOs so far, though, have been the top managers at LinkedIn -- including CEO Jeffrey Weiner.
We've seen a smattering of insider sales at Pandora. And Zynga's CEO made more than $1 billion (more on this in an ensuing slide), but on paper; most of it is still tied up in stock. When it comes to cashing in (or is it cashing out?), nothing quite matches the voluminous sales at LinkedIn.
CEO collected $25.7 million
LinkedIn chief Weiner sold $25.7 million worth of stock in late November and CFO Steven Sordello booked $6.7 million in sales. Three directors and the company's general counsel collectively sold $19 million worth, or anywhere from $2.7 million to $6.5 million apiece. Venture capital firms Greylock XI and Deer VI -- early LinkedIn investors -- sold out $84.8 million and $86.1 million, respectively, according to Thomson Reuters.
This kind of large, early selling by the CEO, other insiders and investors in a new public company raises eyebrows among investors. After all, if the stock has such great prospects, why wouldn't they hold it? "It's not a good thing," says Scott Stevens, of Strata Capital in Beverly Hills, Calif., who has been short LinkedIn stock.
But it's been great for LinkedIn insiders. At a time when hardly anyone has booked profits in any of the much-ballyhooed 2011 IPOs, Weiner, Sordello and four other top managers at LinkedIn have realized multimillion-dollar gains. And there's probably more to come. The company's next lockup release -- the end of a company-imposed restriction on insider selling -- happens in mid-February. At that time, insiders will be free to sell 55 million more shares, or well more than twice the amount they were allowed to sell in late November. (So look for a possible dip in the stock on Valentine's Day, when the lockup release happens, or shortly thereafter.)
All of this explains why I'm making Weiner my latest "One-Percenter of the Week," as a representative of the group. As insiders, they managed to book the big profits that have been so elusive for just about everyone else -- by selling a stock they helped promote as a great buy.
An overpriced stock?
LinkedIn declined to comment. But in fairness to the company, it reported a powerful 126% jump in revenue for the third quarter to $139.5 million, beating consensus estimates. And the number of LinkedIn members rose 63% year-over-year, to 131 million. Analysts have a consensus 12-month price target of $85 on the stock, according to Thomson Reuters, or around 19% above recent levels.
So why have insiders been selling? They won't say. But by many measures, this stock simply looks overvalued. It carries a price-to-sales ratio of 15, compared with 5.7 at Google ( GOOG ), one of the most successful Internet-based companies ever. At $69 a share, LinkedIn might be an example of a "good company, bad stock." At least that's what the huge insider sales here suggest.
