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February 5, 2016 | LinkedIn Plunges 43%, $11 Billion Wiped Out: Where Did the Money Go?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

LinkedIn Plunges 43%

Earlier today, in a strange twist of fate I exchanged emails with Georgetown University professor Salil Mehta regarding Facebook. I replied to Mehta with a comment not regarding Facebook but rather regarding Linked-In: “Pray tell, what the hell good is it for everyone in the world to link to everyone else in the world?

I had not yet seen the carnage in Linked-In. I looked just now thanks to an email from reader Tibor who writes “I know it’s not quite a FANG, but dang! A $50B company down 43% in one day!

Linked-In Daily Chart

Linked In2

Mish Personal Experience

From my own personal experience, LinkedIn customer service truly sucks.

I have two LinkedIn profiles, one of them created because I did not realize I had the other.

I have sent LinkedIn multiple requests to merge those profiles. They have a semi-automated procedure to merge. Each time I received an automated reply stating it would be done. But it never was. And there is no one to contact to complain.

This is bothersome because it is very time consuming to connect to people who want to link to my inactive profile.

If you sent me a request to “LinkIn” and I didn’t, that’s the likely reason. And if you expect customer service at LinkedIn, I have one word of warning “Don’t”.

$11 Billion Wiped Out

Reuters reports LinkedIn Shares Dive More than 40 percent, $11 Billion Wiped Out.

LinkedIn Corp’s shares plunged as much as 43 percent on Friday, wiping out nearly $11 billion of market value, after the social network for professionals shocked Wall Street with a revenue forecast that fell far short of expectations.

The stock sank to a three-year low of $109.50, registering its sharpest decline since the company’s high-profile public listing in 2011.

At least seven brokerages downgraded the stock from “buy” to “hold” or their equivalents, saying the company’s lofty valuation was no longer justified.

“With a lower growth profile, we believe that LinkedIn should not enjoy the premium multiple it has grown accustomed to,” Mizuho Securities USA Inc analysts wrote in a note.

The brokerage downgraded the stock to “neutral” and slashed its target price to $150 from $258.

Raymond James, Cowen and Co, BMO Capital Markets, J.P.Morgan Securities, RBC Capital Markets and Suntrust Robinson also downgraded the stock.

At least 22 brokerages cut their price targets, with RBC slashing its target by almost half to $156.

Downgrades Galore

Where were those downgrade jackasses yesterday? The unsavory answer is pumping the stock up.

Industry analysts are at best useless. Most of them are nothing more than shills.

Where Did the Money Go?

That is one hell of a plunge. Inquiring minds may be asking “Where did the money go? Who profited?

The money went into the pockets of insiders who generally sell every share and every option as soon as they can. LinkedIn made countless millionaires.

But that only accounts for a very small percent of the shares. Where did the rest of the money go?

The answer is “nowhere“. To be sure a few shorts with correct timing made out like bandits. But many others who were short at $200 were wiped out on the ridiculous move up to $258.

Wealth Transfer

The market-makers were the ones short at the top. Most other shorts got stopped out for big losses.

The average shareholder went along for the ride.

LinkedIn Paper-profits were never real in the first place. Imaginary profits went to money-heaven, where they belonged all along.

This is a prime example of the mechanism by which money transfers from the middle class to the wealthy.

Mike “Mish” Shedlock

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February 5th, 2016

Posted In: Mish Talk

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