The 137 per cent surge in LinkedIn’s shares on the first day of trading – on a stock that was initially priced at 17 times last year’s estimated sales – is pretty much impossible to justify on normal financial measures and has led to talk of a new internet bubble.
I will not try to justify it because, as I wrote the other day in a column, valuing social networks is inherently a highly risky business – there is a history of others such as Friendster, Bebo and MySpace flaming out despite high initial hopes.
Meanwhile, I agree with John Plender’s doubts about the dual share structure being adopted by networks including LinkedIn and Renren, which insures that the founders retain control while selling shares to the public.
Yet there are at least good reasons to believe that LinkedIn is a proper business – with more potential staying power than some of the consumer-oriented social networks. Whatever it is worth, I am at least hopeful that it will stick around. Read more