LinkedIn (LNKD) stock is going to be under enormous pressure following news that its 6.5 million password user file was grabbed by hackers and that over half have been cracked despite having been encrypted with a system called SHA-1.
The loss of the file isn't nearly as big an embarrassment as the news that Linkedin failed to "salt" the passwords, a strong of random digits added to each one as it was encrypted or "hashed." Once the hackers decoded a common password, all the user names using that password were instantly made available. With salting, decrypting one just decrypts one.
The bad guys have already begun using the passwords to deluge LNKD users with phishing e-mails and spam. It may be that the hackers still have access to the company's database.
We're talking here about a market cap of nearly $10 billion, showing one-year sales of $522 million. A market cap of $10 billion backing a balance sheet with $1 billion in assets. Yes, the run rate on revenues has doubled in just one year, and the company managed to eke out a profit of $5 million in its most recent quarter. But don't you think dealing with this mess is going to eliminate that profit for the current quarter?
What the hack reveals, in short, are weaknesses that LinkedIn has managed to slough off until now. It's just the excuse shorts need. Is LNKD the next Netflix (NFLX)?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.