What Does It Cost: $1.8 Billion, What Groupon’s Impending IPO Has Cost LinkedIn's Market Cap

> LinkedIn’s Peak Valuation: $8.9 billion
> LinkedIn’s Current Valuation: $7.1 billion
> Amount Lost: $1.8 billion

Social networking site LinkedIn recently enjoyed an enormous single day jump following its IPO. Shares were originally priced at $45 by Morgan Stanley and Merrill Lynch, and then peaked at $95.45. As of this morning, however, shares had dropped to $75.15 —  a decrease of roughly $1.8 billion in market cap. As many analysts have suggested, the company’s immediate market success was because it was the first social media company to go public and not because of fundamentals. Additionally, LinkedIn’s IPO hit as the market was moving towards a new top, giving the stock an additional bump. The company may now be facing a fairer reality, as the value of its shares have settled to $7.1 billion. This is despite the fact that the company is now being considered for inclusion in the Russell 3000.

LinkedIn’s $1.8 billion drop is largely tied to the public offerings of a number of other Internet-based companies. Preliminary IPO filings have been submitted by other social media startups, including Pandora, Groupon, and Zynga. This coming wave of IPOs will dampen much of the excitement over LinkedIn. Groupon, for instance, currently has a valuation of nearly $30 billion. Zynga is expected to be valued at $10 billion, if not higher. As these companies become public, they will dilute the demand for LinkedIn, perhaps costing the company even more than the $1.8 billion they already have.

Charles B. Stockdale