LinkedIn share surge signals dotcom bubble 2.0

LinkedIn, the first major US social network website to go public, saw its shares more than double as they debuted on the New York Stock Exchange on Thursday to a bidding frenzy from investors.

Shares in LinkedIn had been priced at $45 before the flotation but reached $112 at one point—an 150% increase that valued the firm at $10-billion.

LinkedIn’s stellar NYSE debut is the clearest sign yet that stock markets are in the grip of a new technology and digital media bubble, fuelled by the ever-larger valuations of social media companies.

The business networking site, founded by the internet entrepreneur Reid Hoffman in 2002, raised $353-million with its initial public offering on Wednesday evening, which valued the firm at $4,3-billion. The firm last week said it was looking to raise $175-million with the IPO.

The flotation makes the firm easily the highest-valued US internet site since Google went public in 2004. LinkedIn has about 100-million users and turned a profit of $15,4-million on revenues of $243-million in 2010.
At $8,3-billion, LinkedIn is valued at 35 times last year’s revenues.

Though other social networks are far larger—notably Facebook, with about 700 million users worldwide—the business orientation of LinkedIn’s members make them potentially more valuable to advertisers. The company managed to grow during the recession and turned profitable last year, having made operating losses from 2007 until 2009.

‘If this is not a bubble, I don’t know what is’
LinkedIn’s flotation is expected to spark a social media goldrush, with some of the internet’s most exciting—if not profit-making—companies going public.

Groupon, the online discount business which spurned a $6-billion offer from Google in December last year, is expected to float soon, as is Zynga, the maker of popular Facebook games FarmVille and CityVille.

These flotations will also stoke investor appetites for Facebook, the world’s largest social network, which is likely to dwarf the valuations of the internet firms that have recently gone public with its IPO, expected in the next 12 months. The company was valued at $50-billion in January, but its privately held shares have since traded at prices that suggest it could be worth more than $70-billion.

LinkedIn offered 7.8m shares at $45 each - well above its previously expected price range of $32 to $35. Hoffman, the co-founder and chairperson, and the chief executive, Jeffrey Weiner, offered shares equating to less than 0,5% of the company.

Some of the firm’s backers—Bain Capital, Goldman Sachs and McGraw-Hill—offered thre million shares in the IPO. LinkedIn itself offered the remaining 4,8-million.

Other investors—Sequoia Capital, Greylock Partners and Bessemer Venture Partners, which together own about two-fifths of the company—did not participate.

So far the tech bubble appears to be mainly US-based. Europe’s biggest tech success story, internet telecoms group Skype—sold earlier this month to Microsoft for $8,5-billion—as well as other promising players such as fashion firm Net-a-Porter and music site have preferred to sell themselves to larger buyers.

Europe’s Viadeo, the world’s second-biggest social network for professionals, is deferring its plan to go public, opting instead to focus on emerging markets.

But French mobile game maker Gameloft told Reuters it had considered a US listing even though it has been listed on the Paris bourse since 2000. Its chief financial officer, Alexandre de Rochefort, said: “Lots of our US shareholders advise us to list on the Nasdaq because we’d get a share [price] boost of about 50%,” he said. “But I wonder how long this upside can last.

“I am sorry but when Zynga is worth $10-billion something is a bit strange,” De Rochefort added. “If this is not a bubble, I don’t know what is.”

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