Social Media IPOs Drive NASDAQ Higher, Will It Last?
(eToro Blog) The technology sector is beginning to percolate and with the recent IPO's of social network companies, a bubble like the technology bubble seen during the late 90′s might just be in the early innings. Nothing illustrates this point more than the recent IPO success of the U.S. based social networking site LinkedIn(LNKD) and Russia's search engine king Yandex(YNDX) (the Google of Russia). Both stocks priced at the higher end of their ranges and saw very respectable gains in their initial showings.
Investors jumped into these two stocks hand over first because there just are not a ton of pure plays on social networking that currently trade in the market. LinkedIn sold 7.84 million shares on May 18. Trading volume the next day was 3.8 times higher than that amount, the biggest difference between supply and demand in at least five years for an IPO of a U.S.-based company.
Some of the social networking names that traders should watch for IPO news and rumors about in the coming weeks and months are Zynga, Twitter, Groupon.com, Zillow, PopCap, Pandora and Facebook. Let me be really clear here: I expect to see huge trading opportunities in all of these names, if and when they IPO. The momentum money wants in to the social networking space, so I would advise riding this trend with them. Do not fight it.
I know a lot of traders who want to short LinkedIn already, now that the stock is optionable and shares are available for shorting. That trade might work for a bit, but with such a small float, I bet it sees a huge short squeeze that takes it back above the IPO high of $122.70. I understand the valuation argument, but when everyone wants to short something, rarely does the stock do what the crowd wants. I just read a report from Bloomberg that said the cost to borrow LinkedIn shares could be as high as 60% of the value of the shares on an annualized basis. Good luck, shorts.
Surging demand for social-media stock and a comeback in venture-capital IPOs propelled LinkedIn to a high of $122.70 in its first day of trading from an initial price of $45. With a market value of $8.26 billion yesterday, the company must boost revenue by 144 percent a year, twice its growth rate since 2009, to bring its price-sales ratio in line with the Dow Jones Internet Service Index by 2013, Bloomberg data show.
LinkedIn rose to more than $115 and some investors began to look to short the company. Now that options are available to trade, the true price of the stock should begin to emerge. About 18 percent of LinkedIn's shares available for trading are on loan, according to Data Explorers. That compares with an average of 2.9 percent for the S&P 500, the data show. LinkedIn would be the ninth-most-shorted stock in the index if it were in the benchmark measure of U.S. equities.
The Nasdaq was able to gain ground as Microsoft was in the spot light after Fund manager and major shareholder David Einhorn called for new innovation at the company and the removal of CEO Steve Ballmer. People have been calling for Steve Ballmer to step down for years.
But with IBM passing Microsoft in market cap, Microsoft's seemingly overpriced Skype buy, and tablets presenting the first real threat to Microsoft's core Windows business in history, the critics are getting louder and more prominent.
The Nasdaq was unable to pierce resistance at the 50-day moving average near the 2342 level. The NASDAQ has been trading in a tight range between the 2,280 and 2400 for the past weeks and is gathering momentum for a break to either side. Overall our technical view is bullish on the NASDAQ as we identify an overall bullish buildup with solid support at the 2,280 level, confining this bullish trajectory would be a close above the 2,350. However a daily close below 2,280 would invalidate our scenario. On the fundamental angle the Non Farm payrolls data due will hold the cards and investors should trade in the direction of a break above or below resistance and support.
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