LinkedIn CEO collects $25.7M on disappointing IPO

One-Percenter of the Week: Average investors who tried to play LinkedIn's offering last year likely took a hit, but insiders collected lots of cash by selling early. CEO Jeffrey Weiner was among those who cashed in.

By MSN Money Partner Jan 13, 2012 4:29PM

By Michael Brush


Despite the big market advance since October -- the Nasdaq is up 18% -- most investors who bought any of the high-profile 2011 Internet-based initial public offerings (IPOs) in early trading are still feeling some serious pain.


Shares of the most promising, like Groupon (GRPN), LinkedIn (LNKD) and Pandora Media (P), are down 33%, 32% and 44%, respectively, as of Friday, from the midpoint values on the first day of trading.


LinkedIn CEO Jeffrey Weiner/© David Paul Morris/Bloomberg via Getty Images 
But some folks made money in the social networking and Internet IPO game, and not surprisingly, they're One-Percenters.


For example, anyone with large-enough brokerage accounts to get preferential treatment at the investment banks behind LinkedIn's IPO -- and almost by definition, one has to be affluent to have such an account -- made some decent profits. The special inside price for LinkedIn shares at the time of the IPO was $45. The stock opened at $83, and it now trades at around $69.


The hands-down winners in 2011 social networking and Internet IPOs so far, though, have been the top managers at LinkedIn -- including CEO Jeffrey Weiner.


We've seen a smattering of insider sales at Pandora. And Zynga’s CEO made more than $1 billion, but on paper; most of it is still tied up in stock. When it comes to cashing in (or is it cashing out?), nothing quite matches the voluminous sales at LinkedIn.


CEO collected $25.7 million

LinkedIn chief Weiner sold $25.7 million worth of stock in late November and CFO Steven Sordello booked $6.7 million in sales. Three directors and the company's general counsel collectively sold $19 million worth, or anywhere from $2.7 million to $6.5 million apiece. Venture capital firms Greylock XI and Deer VI -- early LinkedIn investors -- sold out $84.8 million and $86.1 million, respectively, according to Thomson Reuters.


This kind of large,  early selling by the CEO, other insiders and investors in a new public company raises eyebrows among investors. After all, if the stock has such great prospects, why wouldn't they hold the stock? "It's not a good thing," says Scott Stevens, of Strata Capital in Beverly Hills, Calif., who has been short LinkedIn stock.


But it's been great for LinkedIn insiders. At a time when hardly anyone has booked profits in any of the much-ballyhooed 2011 IPOs, Weiner, Sordello and four other top managers at LinkedIn have realized multimillion-dollar gains. And there's probably more to come. The company's next lockup release -- the end of a company-imposed restriction on insider selling -- happens in mid-February. At that time, insiders will be free to sell 55 million more shares, or well more than twice the amount they were allowed to sell in late November. (So look for a possible dip in the stock on Valentine's Day, when the lockup release happens, or shortly thereafter.)


All of this explains why I'm making Weiner my latest One-Percenter of the Week, as a representative of the group.  As insiders, they managed to book the big profits that have been so elusive for just about everyone else -- by selling a stock they helped promote as a great buy.


An overpriced stock?

LinkedIn declined to comment. But in fairness to the company, it reported a powerful 126% jump in revenue for the third quarter to $139.5 million, beating consensus estimates. And the number of LinkedIn members rose 63% year-over-year to 131 million. Analysts have a consensus 12-month price target of $85 on the stock, according to Thomson Reuters, or around 19% above recent levels.


So why have insiders been selling? They won't say. But by many measures, this stock simply looks overvalued. It carries a price to sales ratio of 15, compared to 5.7 at Google (GOOG), one of the most successful Internet-based companies ever. At $69 a share, LinkedIn might be an example of a "good company, bad stock." At least that's what the huge insider sales here suggest.


For more on last year’s IPOs, read “The year of the broken IPO.”


At the time of publication, Michael Brush did not own shares of any company mentioned in this column. Brush is an MSN Money columnist and the editor of Brush Up on Stocks, an investment newsletter.


Read previous One-Percenters of the Week: