LINKEDIN: A DREAM FOR BULLS, CONTRARIANS AND ANYBODY WHO BELIEVES IN WALL STREET
This article also featured on TheStreet.com
Opinions swirl. Information is exchanged at a lightening pace. Money is made. Money is lost. Somebody smiles. Somebody cries. Somebody quits trading. Somebody is having their first profitable day.
Lessons are learned on a daily basis. If you have had enough days in the markets those lessons hopefully end up making you into a better trader or investor.
Out of all the lessons I have learned in the financial markets, there has been one constant: the financial markets want you, me and anybody else who attempts to pick fruit from its bountiful tree to tumble from our ladder and break a leg, at a minimum. Death is preferable.
It's one giant psychological mouse trap. Doubt fuels rallies. Fear makes solid bottoms. Greed creates long-term tops. What do doubt, fear and greed share in common? They all take place during periods of time when they are precisely the incorrect emotion at precisely the incorrect time.
LNKD is the new poster boy for a demonstration of the psychological mouse trap in real time. It used to be that NFLX was my go to guy for a lesson in how and why the markets do what they do. LNKD has taken the dynamic to a whole new level.
With LNKD we have the following set of circumstances:
- I'm not a member of LNKD. Most of the guys who I didn't like from high school and college are on there. It seems like a gigantic job board to me when I look at it. Maybe with a social angle thrown in so it's not just another HotJobs. I'm assuming that most people that look at it from the outside see something similar. On the surface, it doesn't seem like anything special.
- A nearly $10 billion market cap. NFLX is $13 billion by comparison. Only difference is that it took NFLX 10 years to get there in the public markets. LNKD did it in one day. Magical.
- Astronomical valuations on price to earnings, sales, book value, cash flow. Whatever ratio you want to apply. It's extremely overvalued.
- A very low float making for some extremely volatile trading conditions.
- Skepticism galore. Just read the headlines. There are more articles about shorting LNKD than anything else.
It is fair to assume that the underwriters knew precisely the type of skepticism that would ensue if Linkedin had even a mildly successful IPO. It is also fair to assume that they knew that short interest and put buying would become commonplace in the weeks following the IPO given the amount of skepticism the valuation would be greeted with.
LNKD is easily the most important IPO for Wall Street since GOOG came public in 2004. An IPO of LNKD's caliber acts as a gigantic, flashing billboard to other companies thinking about going public. Therefore, the success of such an IPO is paramount for all major institutions on Wall Street.
It's like the first guy who manages to walk across a hot bed of coal during a spiritual retreat. It emboldens those who are waiting in line behind him. Should the first guy collapse in pain, all of the others will be frightened away. The organizer of the spiritual coal walk wants to make sure that the first guy who takes the plunge is successful in order to embolden all the others who are nervously biting their nails as they watch his attempt.
What are the chances Wall Street would put out a product with such a low float, high valuation and skeptical audience in order for it to walk across a hot bed of coals and proceed to fall flat on its face?
Doubting Linkedin at these levels is doubting Wall Street. Thinking that the valuation of Linkedin is incorrect here means you think Wall Street is incorrect here. Selling short Linkedin is selling short the advertising campaign that Wall Street spends day and night crafting in order to keep the machine running.
Linkedin is the purest bet on Wall Street that I have seen in sometime. While rebelling against Wall Street is what the cool guys are doing, I'm in this to make money. With that said, I am perfectly fine being totally, completely and utterly uncool.
