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Does LinkedIn Flotation Signal New Dotcom Bubble?

David Gilbert


Logo - LinkedIn

Some people still shiver when they think of all the money they lost when the last dot com bubble burst around the turn of the millennium. Those people will surely have looked on at LinkedIn’s initial public offering (IPO) last night and thought ”here we go again.”

Valuing its shares at $45 prior to floating on the New York Stock Exchange, some thought LinkedIn was over valuing itself at that price, valuing the company somewhere around $5 billion. It needn’t have worried however as investors knocked each other over to invest in the business-orientated networking site. At one point LinkedIn shares were trading at $122-a-share and closed slightly down at $94.25, valuing the company at $8.9 billion and making founder and largest shareholder Reid Hoffman a billionaire in the process. As Reid looked on and applauded all this frantic investing, some were pondering if this IPO signaled the way for the second dotcom bubble. With other social networks like Facebook and Groupon lining up IPOs of their own IPO in the coming year, it certainly seems that way.

LinkedIn IPO

The valuation of LinkedIn at $8.9 billion puts it easily among the 500 largest companies in the world and ahead of some very well-known brands such as Electronic Arts, Hertz and Seagate. This is certainly a surprising turn of events considering the social network made an operating loss between 2007 and 2009. However last year the business-networking site, which has about 100 million users, turned a profit of $15.4m on revenues of $243m. As LinkedIn’s users are seen as more professional and business-orientated, it is believed they are more attractive to advertisers than the 700 million users signed up to Facebook. However despite this seemingly huge valuation, some Wall Street traders said they thought this was only the beginning and a sign of things to come.

With Facebook valued somewhere in the region of $80-$100 billion and Groupon somewhere around $20 billion, it seems as if LinkedIn’s floatation will soon be seen as a blip rather than a bubble.


May 20, 2011, 6:51 pm

Yes, very much like the commodities boom, this is now a bubble. Investors are looking for new places to put all that new quantitative easing money.


May 21, 2011, 12:55 am

That said, I do believe LinkedIn has by far the most compelling business model of all the "social network" players - it is highly focused, that focus is on a lucrative demographic, it has multiple revenue generating mechanisms (e.g. straight advertising, targetted advertising, recruitment, premium memberships etc), it is viewed as having very real and tangible value to its users, it is a tool whose benefit "increases" to its users the more they use it and the more people that join, it has a good "lock in" and there are no credible competitors to date. That's the sort of business that will attract investors.

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