LinkedIn Insiders Head For The Exit Gates
Wednesday, December 14, 2011, by Stathis

Several months ago, I wrote a short piece discussing what I believed to be illegal business practices used by LinkedIn.
 
In an earlier note, we released a detailed analysis of LinkedIn, focusing in its IPO valuation, business risks, the IPO valuation process and several other topics critical for investors interested in shares of this social media firm and others like it. 
  
You will recall that LinkedIn sold about 8% of its total outstanding shares to the public in its IPO debut. In other words, the float was 8%.
 
As of today, seven months later, the number of shares available in the market is approximately 40%. Meanwhile, the share price of LinkedIn has declined by about 22%, or about 12% after adjusting for the decline in the Nasdaq.
 

 

 

So what’s going on?
 
Prior to the past month, the share price of LinkedIn closely traded in line with the Nasdaq, as can be seen from the chart. As you can see, during mid-November shares began to sell off hard, reaching a low since its IPO of $55 as the Dow Jones and Nasdaq sold off in late November.
 
Since then, as the stock market has rallied, so have shares of LinkedIn; somewhat anyway. In other words, based on a superficial assessment of the price chart, it appears as if net selling is occurring. But we need to take a look at some additional data.
 
Below I have posted the insider transactions since LinkedIn had its IPO. As you can see, insider selling began on November 22, which is right around the time that shares began to underperform the Nasdaq. It would appear that insiders no longer want to gradually sell shares to ensure the price is supported by low supply.
 
It would appear that insiders are for running for the gates. Now this could mean one of two things. Either insiders feel that shares are headed for a more realistic valuation of say $15 over the next year and want to (largely) sell their shares without the intention of buying them back, OR they are simply selling now to lock in profits, with the intention of buying back shares once the collapse in price is complete.
 
My guess is that the insiders plan to repurchase shares once the price has collapsed. How do I know this is likely to be their intent? Because some 50 million shares remains restricted and is therefore not in the float. 
 
Either way, this in itself represents securities manipulation. How?
 
Do you really think these insiders are not discussing WHEN and HOW much to sell? 
 
By colluding together, the insiders of LinkedIn might have manipulated the share price. Let’s see how.
 
The average daily trading volume is 1.1 million shares. In other words, each day an average of 1.1 million shares exchanges hands. But on November 22, about 5 million shares were sold in the market. Because these 5 million shares were purchased by others, that means the trading volume for that day was around 10 million shares just from insider transactions alone. 
 

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