LinkedIn (NYSE:LNKD) is expected to price its initial public offering on Thursday. All in all, it looks like the investor demand is substantial, as the company boosted the per-share price range on the deal to $42-$45 from $32-$35.
LinkedIn doubled its revenue last year – reaching $243.1 million – and the company’s even profitable. The IPO will also give investors a taste of the social-networking market — the LinkedIn website has more than 100 million registered members.
So how can you get shares in the IPO? Here’s a look at some of the options:
Buy from LinkedIn’s Investment Bankers: In an IPO, a company will typically hire financial advisers to structure the transaction and raise the capital. You can find these companies from the prospectus, which is located at the EDGAR database from the Securities and Exchange Commission.
LinkedIn’s investment banks include Morgan Stanley, Merrill Lynch and JPMorgan.
But there’s a catch: you will most likely need to qualify for the private client groups of these firms. In other words, you need to be a fat cat.
Keep in mind that hot IPO shares are a great way to make big-time clients happy (alas, Wall Street hasn’t changed much over the past 200 years). In fact, the investment banks will actually undervalue an IPO to create a pop on the first day of trading. Typically, this is anywhere from 10% to 15%, which is certainly a nice payday.
But with a hot IPO deal, the return can easily be 50% or higher. So in light of this, why allocate shares to clients that have small accounts?
Secondary Markets: Over the past couple years, new markets – like SharesPost and Second Market — have emerged to trade private company shares. On these exchanges, LinkedIn has traded at about $30-$31.
But again, there’s a catch: it can easily take a month to put together a transaction because of the legal hurdles. What’s more, you’ll likely need to buy a sizable chunk of the stock, say, more than $100,000 in value.
After-Market Trading: Unfortunately, this is the most common option for individual investors. It means that the shares will have already spiked and the risk levels will certainly be hefty. For example, one recent IPO, Renren (Nasdaq:RENN), saw a 50% drop after the first week of trading. This was the case even though it has been called the “Facebook of China.”
But there is a better strategy: You can wait six months. It’s after that point that insiders and employees can start selling their shares on the open market (this is because of a contract called a “lock-up”). Often, you can get a much better deal on the shares because of the dumping.
For finger-happy traders, however, it is often too hard to muster the patience to wait this long.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.