In its first day, Linkedin (NYSE:LNKD) hit $122.70 and is now down 34%. With LNKD there is no valuation comparison, because LNKD was the first US-based social networking company to IPO; it appears the investment bank purposely scaled down the IPO size to engineer a first-day moonshot.
The real takeaway, however, is that it looks like some of LNKD’s 102 million registered users bought in the IPO after market with no regard to basic valuation methodologies. But LNKD is no Google (NASDAQ:GOOG) and uninformed investors will be licking their wounds for a long time.
GOOG was branded enough that it could IPO via an auction and circumvent the traditional IPO investment banker community. At the time GOOG and Yahoo (NASDAQ:YHOO) were similarly valued using standard valuation metrics, so GOOG’s first day after market trading made sense.
We also saw the ‘first day social networking IPO pop syndrome in action with social network Renren (NYSE:RENN), which hit $24 the first day and is now down 46%. Much of the initial after market activity may have been investors who had been hypnotized and flummoxed by Facebook's song and dance.
LNKD”s and RENN's IPO pops have implications for other social networking IPOs in the pipeline. The one closest to an IPO is Pandora, with 34 million active users. It’s possible that Pandora's user enthusiasm will also make the stock peak in its first day of trading.
Other over-eager "social networking" (broadly defined) users could similarly power first-day IPO pops for Groupon, Znyga, Zillow and Kayak. Some of those upcoming first-day IPO pops may not be seen again in a long time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.