Value Investing Forum

Lock-up Expiration is on the 14th.  

I figured this company would do this.  They reported something nice right before their lock-up exp. so their insiders could dump the stock for a nice price.  

Company is very over valued but I don't like purely valuation shorts.  The catalyst for the short is the lock-up expiration.  The original lockup exp brought the float from 5% to about 40%.  Now they agreed w/ their i-bankers to an additional 90 day lock-up exp which expires Tues. Feb. 14th where their insiders are going to dump their stocks increasing the float from 40% to……??? 

somrh, crackin eggs of wisdom all over the place

They have a llisting on an ftp site: here. It will ask for a password; just click OK.

The far right column has IB's shares available. The fourth column in has the "indicative rate" or borrowing rate. I believe it's technically a "fee" (the rate is quite high on some stocks). LNKD is currently listed at 7.441%.

I don't use IB so I'm not sure how it works for you. You may have borrowed shares from someone who has an IB account who owns LNKD and whose equity < assets. In that case, IB (I presume, I don't know their margin agreement) can loan out that person's shares for shorting.

That's another reason why not to allow your assets to go over equity because you could get taxed at a higher tax rate on any dividends you receive. In lieu dividend payments from a borrower end up getting taxed at your income rate instead of the special status dividends get now.

Just out of curiosity, what are you borrowing costs at the moment? IB is listing it at 13% if I'm reading it correctly. Or were you able to snatch someone's stock bought on margin?

Thanks for the response.  You know, you make some good points there.  

1) From my research on tech stocks, I know that the margins for social network ad revenues are far less than other tech stocks because of the ineffectiveness of their ad clicks.  They also carry a higher cost in terms of infrastructure per user.   You are entirely right that it is possible for them to reduce costs and increase revenues but I do not see that happening enough to justify the current stock price.  But one of the main reasons for my decision to short is my assumption that they never reach full "maturity" in the sense that they'll gain 650 million subscribers due to competition and the lack of a demand for this type of site in face of its competition.  

2) As far as a buyout goes, the suitors are limited and I would assume it would be one of the large tech companies (Microsoft, google, yahoo, apple, facebook).  Google now has it's google+ platform competing with facebook.  Facebook doesn't really have an incentive to overpay for LinkedIn as I believe they would compete by altering their current platform.  That leaves Yahoo, Apple and Microsoft.  It's possible.  I'm going to ride it out till February to capture any gains and reduce my risk.

Current Share Price: $67

52 Week high: $110

52 Week low: $56

P/E: 928

I've been shorting this stock since August.  

The stock has been propped up because of a 5% float, shooting up from it's IPO price of $35 to a peak of $110.  

Being a internet company, their revenue models are based off of a per user basis.  Currently, they have 120million users.  Facebook has approximately 750 million users.  The CEO of LinkedIn has estimated that there are currently 650 million "potential" users for LinkedIn.  

Being in business over 8 years now, their revenue model has matured.  They largest growth model in the company is the one generating revenue from job advertisements competing with companies such as Monster.com which makes up the largest portion of their growth model.  I've made several assumptions which leads me to my conclusion.  

First off, even if the company reaches their potential of 650million users, that would represent approximately a five fold growth in their current revenues off of premium subscriptions and subscribers fees which is possible.  Then in addition, lets assume they were to put monster.com out of business and capture their entire market share, it would still be extremely hard to justify their current stock price which is trading at an extreme of 928 times earnings.

The company currently holds $396million in cash with 900 million shares, that represents approximately $0.41 per share.

Current EBITDA is $48mil

EBITDA at Maturity (Current EBITDA x 5) = $240 mil.

EBITDA per share at Maturity = $2.49

I'm not going to even calculate or put together a model for net income off of EBITDA because I dont' think it's worth the time but net income is significantly less than their EBITDA.  For simplicity sake, let's just say that at maturity the stock should be trading at closer to 10 times earnings, or 30 times earnings if we are being extremely generous.  The stock is already more than fully realized.  

Catalyst:  The companies stock was held up by the 5% float and speculators buying in to tech stocks.  The lockup period expiration was on November 15th.  Some of their early investors and company directors unloaded stock on this day at approximately $71 in a secondary offering.  This let a lot of the air out of the stock by increasing the public float and the stock dropped from $80+ to $56.  In an agreement for the secondary offering, company employees agreed to an additional 90 day lockup period for the remaining shares of the company which leads to a Mid-February lock-up expiration.  The increase in the float in february 2012 is going to let out any remaining air for the stock and I'm predicting a bottom price of $30 and a high of $45.  In a 2008 sort of recessionary environment, the stock would probably go towards $6.  

It's highly unlikely that this company is going to reach the usership comparable to facebook usership as this is a site geared more towards professionals who use the site sparingly compared to facebook's user base which uses this site on a daily basis which leads to a higher chance of refferals to new members, ect.. And if it does, the company has already exceeded its' value if it was to reach maturity.