LinkedIn: Out of Lock Up and Sinking

Insiders can now sell, putting millions of shares on the market

Nov 21, 2011, 12:01 pm EDT | By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

LinkedIn (NYSE:LNKD) shows how hot IPOs can be stomach-churning. Since October, the stock has plunged from $94 to $66.84. And it’s now off over 7% in Monday’s trading.

True, LinkedIn is the dominant player in the fast-growing market of professional social networking. Keep in mind that the stock is considered a proxy for Facebook. So how could things go wrong?

Well, the problem is that there’s likely much pent-up pressure for insider selling. LinkedIn’s employees are sitting on millions of dollars in gains. So why not sell some shares and buy a nice car or even a house? It seems pretty reasonable.

And yes, more stock is starting to hit the market. Just last week, LinkedIn pulled off a secondary offering of 8 million shares. Of these, about 6.7 million were sales from insiders.

As for this week, millions of more shares will likely hit the market. Why? Because of the lockup. This forbids insiders from selling shares within 180 days of the IPO.

But on Monday, the lockup expired. Up to 24 million shares will now be available for unloading. And investors should be wary. After all, LinkedIn’s stock is still trading at a lofty 920 times earnings!

Tom Taulli runs the InvestorPlace blog “IPO Playbook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.