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LinkedIn Loses Connection as Stock Tanks

Linkedin founder Reid Garrett Hoffman (C) and CEO Jeff Weiner (2nd R) at the ringing of the opening bell of the New York Stock Exchange May 19, 2011 during the initial public offering of the company.
Stan Honda | AFP | Getty Images
Linkedin founder Reid Garrett Hoffman (C) and CEO Jeff Weiner (2nd R) at the ringing of the opening bell of the New York Stock Exchange May 19, 2011 during the initial public offering of the company.

It looks like LinkedIn may have crapped out.

A company considered perhaps this year’s biggest initial public offering has quietly lost much of its shine since it debuted May 18. The stock has fallen about 38 percent since its opening at $83 despite being priced at $45.

Shortly after it opened, LinkedIn zoomed to $122.70 a share, but has quickly zoomed back as some of the bubblicious flare faded away.

“It’s completely overvalued,” said Dave Rovelli, managing director of US trading at Canaccord Adams.

Shortly after the launch, Rovelli told me he would short the stock if he could, and apparently other traders have taken up that call as LinkedIn trading has progressed.

This, apparently, is what happens to a stock that is trading at a silly 1,137 P/E.

“You could short it last week but the borrow was hard to get,” Rovelli said.

LinkedIn’s IPO was the subject of speculation that Morgan Stanley, which handled the offering, screwed up when pricing it at $45.

“There’s no way the underwriters underpriced it by 40 points,” Rovelli said. ‘There’s no way a company that earns (as much as LinkedIn) a quarter should be trading at this level.”

The company had revenue of just $243 million 2010 and net income of $15 million.

Several traders--many aren't even following LinkedIn—said the stock clearly is a bubble, and Rovelli projected that when other IPOs such as Groupon and Facebook hit, LinkedIn could get a brief rally but then likely fall to $40 or $50 a share.

“This is a perfect example of an Internet bubble,” one said. “Everyone wanted to own it.”

Unfortunately, most of that group included retail investors who didn't get a taste of the IPO but had to buy in at the inflated prices once the stock opened for trading.

"Retail investors ended up holding the bag," Rovelli said. "No one twisted their arms."

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