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LinkedIn Stock Plunge: Where Did the Money Go?

The stock of LinkedIn Corp (LNKD) plunged by over 40 percent on Friday. The company earnings forecast did not match the expectations of investors. This affected the company valuations and induced the selloff. As a result, the LinkedIn stock lost over $11 billion of its value.

The question often asked is where the $11 billion went. First of all, this money never existed. The only case when the company capitalization value is converted to cash is when all the company stock changes hands. Only a small portion of stock is actively traded. The rest of the stock is sitting at the investor accounts and the value is determined by the last transaction. Most of LinkedIn stock was purchased in 2011-2012 at the price below $50. The investors who on this portion of stock are still in profit. As for the actively traded pool of stock, money is exchanged at each transactions. For example, the trader who bought the stock in August, 2015 for $185 and sold it in January, 2016 for $250 made $65 profit per share. The second trader who bought the stock in January is now at loss of $140 per share. The loss is totally due to stock depreciation, and it may be considered a paper loss until the stock is sold.

LinkedIn Stock
Chart: LinkedIn, Corp. (LNKD)