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Chase Coleman Made 400% on His Original LinkedIn Investment
Posted by: guruhl (IP Logged)
Date: January 10, 2012 05:20PM
Chase Coleman bought 300,000 Class A shares of LinkedIn (LNKD), a rapidly growing albeit largely unprofitable professional networking site, at its IPO on May 24, 2011, for $45 per share. His gain from that is 47%. He originally invested $31 million by acquiring 2,436,001 shares in a number of secondary transactions, from Dec. 21, 2009, to Aug. 10, 2010. Later, he exchanged the preferred shares for Class B common shares at an average cost of $13 per share. His return on his original investment is 400%. The company's Class B shares allow the holder 10 votes, while Class A shares allow 1 vote. Coleman now owns 6.4% of LinkedIn, and the stock is trading at $66 per share.
Coleman is the founder of Tiger Global Management, and is considered one of the “Tiger Cubs,” i.e., one-time protégées of the legendary Julian Robertson, the inventor of the hedge fund. He specializes in small caps and technology stocks.
LinkedIn is one of the first social media companies to go public. It held its IPO in May 2011, with shares priced at $45, putting it at a valuation of $4.3 billion. The share price skyrocketed to over $100 in July, but has since declined to $66 on Tuesday.
LinkedIn chose a “low-float” IPO, in which a company issues a small amount of its shares to high investor demand, which can inflate the stock price. Pandora (P) and Groupon (GRPN), other web-based companies, also employed “low-float” strategies for their IPOs. LinkedIn made only 10 percent of its shares available initially, raising $248.4 million.
The low-float strategy also allows companies to issue more shares later and raise additional capital at higher share prices, which LinkedIn did. On Nov. 3, 2011 it announced that it would sell approximately $100 million of its shares in a proposed follow-on offering, and will use the raised capital for additional working capital, as well as for further expansion of its product development and field sales organizations, capital expenditures and potential acquisitions or investments, all of which are critical to its long-term growth.
LinkedIn shares fell significantly when the six-month lockup period prohibiting employees from selling shares ended on November 21. According to GuruFocus Insider Buys/Sells, at least nine insiders collectively sold 3,413,447 shares on November 22, at a share price of around $69.
The rapid growth at LinkedIn requires significant investment, and as such has rendered profitability difficult to achieve. Its membership jumped 61% in the second quarter of 2011 from the second quarter of 2010, and 63% in the third quarter of 2011 from the third quarter of 2010. Revenue has been likewise growing. It grew 120% in the second quarter of 2011 from the second quarter 2010, and 126% in the third quarter of 2011 from the third quarter of 2010.
Though the company has not reported earnings for 2011, it turned a profit of $15.4 million in 2010, after two previous years of losses. According to its 10-Q, the company says a profit for full-year 2011 is unlikely. It has $367 million in cash on its balance sheet and a paltry $16.3 million in long-term liabilities. It has a P/S ratio of 25.2
LinkedIn gets the most revenue (51%) from its Hiring Solutions products. The company’s future growth will depend on its ability to increase its member base and as a result increase sales of its hiring solutions, marketing solutions and premium subscriptions.
Coleman is known for venturing into social media and Internet companies. He owns a stake in Facebook Inc. and Zynga Inc. (ZNGA) as well, and made a 45% return in the first 10 months of 2011.
The only other guru to own LinkedIn stock is Ron Baron, who has 342,855 shares.
This information is a part of GuruFocus’ Real Time Picks.
Guru Discussed: Chase Coleman: Current Portfolio, Stock Picks
Stocks Discussed: LNKD, P, GRPN,