LinkedIn released its IPO last week and closed at $94 per share, which was twice as much as the offer price at the start of the trading day. The remarkable performance of the LinkedIn IPO put the company’s value at $9bn which is much higher than the pre-IPO worth of the company. Does this situation ring any bells? The popularity of the LinkedIn IPO has reminded people of the Dot Com bubble of 2000 which started on a strikingly similar note. In March 2000 NASDAQ peaked to a whopping 5132.52 points and eventually crashed to a point where recovery seemed next to impossible. In fact, NASDAQ still remains at least 54 percent below the highest achieved number and has failed to catch up.
The similarity between the recent Social Media bubble and the Dot Com bubble of the 90’s has forced us to take a look at the scenario which can eventually lead to a rapid decline. Young entrepreneurs are coming up with newer social media offerings and finding willing investors who want to get hold of the lucrative market. Another aspect that may be similar to companies from the Dot Com era is that LinkedIn has not reported in surprisingly high profits and an initial valuation of $4bn too seemed high. At the end of the trading day the company was worth $9bn which forced people to wonder: Is it really worth the hype or an indication of times to come?
However, not everything is similar to the scenario which was there 10 years ago. The internet industry has grown astronomically in the past decade and companies have much stronger and realistic business models with respect to online advertising. It remains to be seen whether this is just another bubble that will burst or whether it is the next big thing.