November 30, 2011, 3:52 PM — On a day when many tech stocks rode optimism stemming from coordinated action by major central banks to ease the European debt crisis, LinkedIn caught the biggest wave.
Shares of the professional social networking site (NASDAQ: LNKD) jumped 10% in Wednesday trading to $65 from Tuesday's closing price of 59.07. But was it a jump for shareholders to get excited about, or more like one of those jumps people trapped in plunging elevators try right before they hit ground?
We'll find out over time. For now, though, LinkedIn investors are looking at a 32% loss in share value since Oct. 24, even counting Wednesday's big gains. (Shares were trading at 64.90 with 10 minutes before the market closed.)
LinkedIn's lock-up period ended on Nov. 21, meaning that shareholding employees and early investors were able to sell their stock for the first time since the company went public on May 19. The influx of extra shares on the market exerted downward pressure on LinkedIn shares.
But LinkedIn's stock already had been losing value before the lockup expiration. Shares dropped to $72 on the last trading day before the locked-up stock could be sold or bought. So more than three-quarters of the lost share value since Oct. 24 came before the extra shares were available.
Obviously some of that early decline could be attributed to anticipation of the lockup expiring. But let's not overlook the company's third-quarter net loss of $1.6 million, compared to a net profit of $4.0 million in the year-ago quarter.
LinkedIn's Q3 losses (announced Nov. 3) pushed shares down more than 11% as the company reported a massive increase in expenses. Operating costs soared 133% to $134.9 million, while sales and marketing expenses more than tripled to $46.1 million.
In addition, LinkedIn also announced a $500 million secondary share offering.
Bottom line: With multiple points of downward pressure on shares, LinkedIn investors had better be patient.