What If Everyone Is Wrong And LinkedIn Purposely Sabotaged Its IPO?


If you haven’t been following this one, here’s a recap: LinkedIn went public and their share price was offered for around $45. When the public markets opened that day, the price doubled (and almost tripled) with the final price settling at around $93.

A chorus of boo’s could be heard from bloggers and analysts who think that LinkedIn’s shareholders were ripped off and a war of words erupted amoungst financial experts about whether this is true or not. Check out some of these headlines for some hilarious entertainment:

  • CONGRATULATIONS, LINKEDIN! You Just Got Screwed Out Of $130 Million – businessinsider.com
  • Jane, You Ignorant Slut — epicureandealmaker.blogspot.com
  • Even The “Smart” Arguments Justifying LinkedIn’s IPO Pop Are Bogus – businessinsider.com

Now, the question begs to ask – who’s right and who’s wrong? I’m not a financial expert so my opinion should be taken with caution but I’m willing to consider an option that no one else have thought of:

Both sides of the argument are wrong.

You see, I consider the anonymous banker’s claim to have merit that LinkedIn’s bankers could very well have made an educated guess at the offering price amount, run it through the LinkedIn guys and had them sign off on it to be true. I also agree with Henry Blodget’s assertion that bankers typically talk up these lower prices only to sell higher on IPO day anyway and that there are lines crossed in ethical duty to the customer.

But to both of those guys, I ask them to consider this option – what if LinkedIn sabotaged themselves in the IPO and purposely set a low price that would get everyone talking about it? And what if that last-second price hike of the offering from approx $35 to $45 was merely a way for the LinkedIn guys to keep themselves looking like the victims, instead of looking like the idiots?

You see, there is a powerful element of this equation that isn’t being considered by anyone – word of mouth marketing.

I mean, look at this story – everybody is talking about it.  For the price of $130 million in sacrificed stock value, LinkedIn is on everybody’s lips and continues to be to this day. Lots of people who have never discussed the company on their sites before (including myself) are now talking about them. It’s almost as if LinkedIn knew that such a pop in the stock price on the first day would make them synonymous with all the recent Internet bubble talk (which we can expect to keep hearing for quite a while longer) while cementing their place among the social media elite and making themselves look like a superstar company on the rise all at the same time.

Like I said, I’m not a financial expert, but doesn’t common sense dictate that this whole saga was carried out by educated men who clearly knew what they were doing and knew what would happen when it did?

I’d be interested to hear what the anonymous banker and Henry Blodget have to say about this and I’m also waiting to see if anyone will actually bother to ask Reid Hoffman from LinkedIn if he’s happy with how everything went down. I don’t doubt that some of the highest of trading prices on that opening day were a bit moronic too but considering that a precedence for public social media companies was being set in the marketplace, I’m willing to bet that a whole pile of other social media companies would be green with envy while watching that dude become an instant billionaire – and this is exactly what he wanted. 

A flood of other companies will go public, get high valuations as well their high price will help justify LinkedIn’s own massive valuation (and perhaps increase it). I suppose it also doesn’t hurt that Hoffman is also an investor in Twitter and Zynga and will make bank on those IPO’s in the future too (Zygna are reportedly about to do exactly that). The dude is a genius.

So in this scenario, we haven’t just witnessed the beginning of another Internet bubble – we’ve witnessed the prodding by a very smart man who might have triggered a chain of events that in itself will become an Internet bubble. The only difference is that every other social media company will be compared to LinkedIn, gain valuations at even higher multiples and then struggle to justify them with the amount of revenue they make each quarter when filing public statements. When the other companies are struggling, that will make LinkedIn look better in comparison.

What do you guys think of all this business? Do you think LinkedIn were smart to IPO before Facebook, Twitter and Zynga? Do you think that we are about to witness another dot-com boom and dot-com bust? Do you think this is all a bunch of huffing and puffing? Do you even give a sh*t?