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With markets wobbly off of European debt concerns, [1] LinkedIn (NYSE:LNKD) also has another reason to worry. The company recently issued a $500 million secondary offering, [2] which includes $100 million worth of stock, the bulk of which is coming from existing shareholders. While the debate continues on whether or not LinkedIn is over-valued, shareholders selling their stakes doesn’t instill confidence. The company’s shares have slumped about 10% last week. [3]

LinkedIn’s “Expansion” Pitch Might Not be Enough

While LinkedIn continued to expand its reach further in Q3 2011, our own estimates suggest that the company’s fundamental drivers do not support a $7-$8 billion market cap. Refer to our article Why LinkedIn’s Fundamentals Don’t Support the Market Price on why we think the market is getting ahead of itself on the company.

The valuation debate makes the decision of LinkedIn’s existing shareholders to sell-off even riskier, that too just after the lock-in period has expired. Shareholders can perceive this as an implicit acknowledgement that perhaps LinkedIn really is over-valued. The announcement is also a case of bad timing, with the stock already declining as the U.S. indices like the S&P 500 (NYSEARCA:SPY) slide on account of the eurozone crisis.

We currently have a price estimate of $43 for LinkedIn’s stock, which is well below the current market price.

Notes:

  1. Bloomberg: U.S. Stocks Extend Slide on Euro Concern
  2. LinkedIn: Form S-1 Registration Statement
  3. Google Finance: LinkedIn

Disclosure: No positions

Source: LinkedIn's Slide Continues Post-Secondary Offering