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LinkedIn Just Told the SEC to Expect Massive Stock Dilution This Year

LinkedIn (LNKD)'s stock closed yesterday at $94.33/share, a robust performance considering how skeptical everyone is about a $9 billion valuation on a company that made only $2 million in profit in Q1 2011.

And for good reason: CEO Jeff Weiner and his team are about to give investors a lesson in the meaning of the word "dilution," according to a filing with the SEC yesterday. The company plans to offer up to 51.4 million new shares to its managers and employees as part of their incentive compensation in 2011. Right now, there are only 9 million LNKD shares outstanding on the market. Put simply, the more stock a company issues, the less valuable each individual stock is worth.

And those are only the new shares. At one point before the IPO there were 105 million privately traded shares in the company. Just before the offering, the company reported it had a total of 94 million shares outstanding. Of those, about 85.7 million owned by insiders and money managers become eligible for trading 180 days after the IPO, according to Bloomberg.

It will be interesting to see how quickly LinkedIn's current holders figure all this out. Non-holders already know it -- about 15 percent of the stock is currently being borrowed by short-sellers who are betting the price will fall.


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