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LinkedIn share floatation raises fears of valuation bubble

May 19, 2011 By: Dr Search Principal Consultant at the Search Clinic Category: Customer Service, Ecommerce, internet, LinkedIn, Online Marketing, Technology Companies, Uncategorized

LinkedIn is likely to be the biggest floatation of a technology company since the technology market bubble of 2000.LinkedIn share floatation raises fears of valuation bubbleThe site’s projected value has jumped 30% ahead of its much hyped initial public offering (IPO) share flotation today.

The company said it expected shares to sell for between £25-£27 ($42-$45) , giving the business networking site an overall price tag of around £2.6 billion.

Industry watchers said it could pave the way for other social sites, including Facebook, to go public. Eager traders and their clients are also eyeing up sites such as Groupon, Twitter and Zynga.

However, there is one in particular that they are desperate to splash the cash on.

The big question is whether or not LinkedIn can justify the share price hike especially after the company revealed in the risk factors section of its prospectus that it does not expect to be profitable in 2011.

“Our philosophy is to continue to invest for future growth, and as a result we do not expect to be profitable on a GAAP basis in 2011,” the filing said, referring to generally accepted accounting principles.

Some investors believe the asking price is over hyped given that it values LinkedIn at almost 17 times its 2010 revenue of over £ 150 million ($243m).

Facebook which is six times the size of LinkedIn with more than 600m users, is expected to go public in 2012.

The world’s biggest social network is valued at 32 times estimated 2010 sales, according to Nyppex, a private share market.

By comparison Google’s shares trade at about six times its revenue.

While some question the site’s proposed share price, other analysts credit the company with good judgement when it comes to the timing of its IPO.

The attention that the LinkedIn IPO has received has inflamed talk of a technoligy bubble reminiscent to that of the late 1990’s and the dot com boom when prices for tech stocks were over inflated leading to an implosion of the sector.

In a recent report by SecondMarket, an exchange for private shares, investors expressed the most interest in Facebook, followed by Twitter, Groupon and LinkedIn.

One note of caution for the sector came in the shape of Renren, dubbed the Chinese Facebook, which went public earlier this month only to see its shares drop below the IPO price.

The French networking site Viadeo, a chief rival of LinkedIn’s, earlier this week said it would put plans to go public on hold for now.

You can track LinkedIn’s progress as they begin trading on the New York Stock Exchange with the symbol LNKD.

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