Is There a New Internet Bubble? - the Mesh Report

Is There a New Internet Bubble?

the Mesh Report Staff May 20, 2011 0
Yesterday, the social networking company geared to professionals, LinkedIn (LNKD), launched its IPO. After previously being priced at $45 a share, the stock actually opened up for trading at $83. Within a couple of hours the stock hit $122.69! That’s an increase of 172% from its $45 price!

To say that LinkedIn’s valuation is rich is an understatement. At $100, LinkedIn is roughly valued at $9.4 billion. This is valuation is 25 times 2011 revenue, assuming that first quarter sales are matched over the next three quarters.

After such an impressive launch for LinkedIn, I wouldn’t be surprised to see a a wave of other social-networking company’s file for IPOs. With a valuation similar to LinkedIn, Facebook would be valued at $100 billion. Where LinkedIn has 100 million members, Facebook has 600 million. At $100 billion, Facebook would be worth more than twice the value of General Motors (GM), 66% more than Home Depot (HD), and 17% more than McDonald’s (MCD).

Social-networking companies aren’t the only internet companies excited about LinkedIn’s one-day performance. Next week Yandex, Russia’s largest online search engine will IPO and is set to raise more than $1 billion. Investor demand for Yandex shares has reportedly been so high that the company may finish taking orders earlier than scheduled. The company is expected to trade on Nasdaq under the symbol YNDX.

Among other deals that are expected to happen as early as this summer is vacation-rental site HomeAway, which filed for an IPO earlier this year with hopes to sell as much as $230 million worth of shares, as well as online radio company Pandora Media and travel website Kayak.

Other internet companies that could soon make plans for an IPO are Groupon, Twitter, and Zynga.

This action in LinkedIn is very reminiscent of when I launched my career in the summer of 1999. I clearly remember the second day I ever traded and I bought 100 shares of the Japanese company Internet Initiative Japan, Inc. (IIJI) and it quickly went from $50 to $62. I made $1,200 within minutes and had only one day of experience. Now IIJI trades at about $8.

Which leads me to be quite suspect of this price action in LinkedIn. Will it be able to sustain this valuation and grow like a Google? Or are these prices a result from an over-excited market which will ultimately lead to a lower valuation?

What do you think? Where do you think LinkedIn shares are headed from here? Would you buy this stock at these prices? Please leave your thoughts & comments below.

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