Who Cares Where LinkedIn's IPO Was Priced?

By Eric Jackson
RealMoney Contributor
5/23/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

Since LinkedIn's (LNKD - commentary - Trade Now) IPO on Thursday, there's been a lot of chatter about whether the bankers properly priced the deal.

That simple sentence has a lot packed into it -- especially the word "properly."

The stock's offer price was hiked pretty significantly into Thursday's IPO ($42 to $45), and it was priced at the high end of the range. Many people, including me, thought that this IPO price seemed fancifully high.

When the stock immediately doubled on Thursday morning and then, as we approached noon, seemed close to tripling its IPO price, jaws were dropping on Wall Street. Pretty quickly, the armchair bloggers and journalists were asking how the investment banks (Morgan Stanley (MS- commentary - Trade Now) and Bank of America Merrill (BAC - commentary - Trade Now)) could have so mispriced the deal.

Henry Blodget of Business Insider said immediately that the bankers had left $100 million on the table, which investors pocketed instead of LinkedIn. Joe Nocera at The New York Times on Saturday said that this under-pricing by the bankers was a sign that the dangerous ways of dot-com era of the '90s had returned with a vengeance. Josh Brown at the Reformed Broker blog complained that LinkedIn hadn't used a Dutch auction system to price the deal as Google (GOOG - commentary - Trade Now) did (with Morgan Stanley's help, no less) in its 2004 IPO. (In a Dutch auction, bankers solicit bids before the public offering and set the IPO at the highest level at which the stock can be sold.)

Before we shoot the bankers (and I hate to defend them, since they're highly overpaid for what they do), I have to ask, who cares how they priced it?

Was LinkedIn irreparably harmed? Hardly. The company certainly didn't seem to be fuming about the IPO in the hours after the close. All the coverage it was getting from the press was basically crowning it the king of social networking (even though its moonshot IPO is probably going to be less than 10% the size of Facebook's).

LinkedIn raised less than $200 million from the IPO, and it sure looks as though it left money on the table. But management and the board chose to sell only 5.3% of their stock in the IPO. If prices hold up, they will get plenty from future secondary offerings.

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Chinese IPOs and the Value Investor

By Eric Jackson
RealMoney Contributor
12/13/2010 5:01 PM EST
Click here for more stories by Eric Jackson

A week ago, I think it's fair to say that 99% of investors and probably 99.5% of the media weren't paying attention to the fact that Youku (YOKU - commentary - Trade Now) or Dangdang (DANG - commentary -Trade Now) were going public.

However, after these stocks immediately jumped over 160% and 80% in value on their first day of trading on Wednesday, people sat up and took notice. Then, as their prices kept going up on Thursday and Friday morning, people's jaws started to really drop.

However, the inevitable backlash started to come against both companies. Most of the critics of both companies are Bill Miller-esque raging value fundamentalists.

Speaking about Youku, you often hear the complaint, "How can a company that had $35 million in revenue in the first nine months of the year and lost money be worth $5 billion?" (That was Friday. It's worth less today, but you get the point.)

I consider myself a value investor at heart. How can you not like the idea of picking up something for 50 cents when all indications are that it's worth a buck? And I certainly believe that the market is not always efficient or rational, thereby giving investors many opportunities to pick up something that has been temporarily thrown into the discount bin.

At the same time, I've never been good at investing on the basis of momentum or trading the technicals of a chart. Many people do it every day and swear by it. But that's just not me.

However, speaking as a "value guy," I get a little sick at the self-righteousness of some value investors and their criticisms of these Chinese IPOs. The simple truth is that any pure value investor missed Amazon.com(AMZN - commentary - Trade Now) after its IPO and for the last 13 years since.

I don't think there's ever been a time during that stretch -- even post-Lehman -- when a value investor would have been said to get into Amazon. Yet it's been a great investment over that period.

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