Is the LinkedIn IPO the beginning of the end?

Posted on the 26th May 2011

Last Thursday LinkedIn Corp’s shares more than doubled in their first day of trading, setting the stage for debuts from other Internet companies such as Facebook Inc. and Groupon Inc.

The outsize demand for the stock of an Internet company that is growing rapidly but had a profit of $15.4 million last year is the latest sign of the surge—some say bubble—in Web valuations even as the broader U.S. economy struggles to rebound from the recession. Shares of LinkedIn, which operates a professional-networking site, opened at $83 on the New York Stock Exchange, up 84% from its initial public offering price of $45. By the market’s 4 p.m. close, the stock had soared 109% to $94.25. At the end of the day, LinkedIn was worth $8.9 billion. Now – whatever way that we care to look at this – that is a lot of money to pay for a company that has only made $15 million so far. It is placing a PE value of 600…in other words – if LinkedIn does not improve its earning at an almost exponential rate then it will take investors 600 years to get their investment back.

It was the biggest Internet IPO since Google Inc.’s debut in 2004 and created spoils for a varied cast from venture-capitalists and investment bankers to LinkedIn executives and staff. Although Some investors stressed that LinkedIn’s valuation is far too lofty for a company that generated $243 million in revenue last year. LinkedIn is also benefiting from being one of the first such Web IPOs out of the gate, analysts added.

LinkedIn, which has more than 100 million members, allows people to network professionally online and provides recruiting tools. It makes money from online ads, premium subscriptions and hiring tools for recruiters. It has warned revenue will slow and it will be unprofitable in 2011 as it invests in technology and international growth. In the private market, Facebook was recently valued at around $70 billion, up from around $35 billion at the end of last year. Twitter and Groupon have also seen their valuations soar to multibillion-dollar levels. Internet-phone company Skype SARL was snapped up last week by Microsoft Corp. in an $8.5 billion all-cash deal.

So – is this cash fest the beginning of a new era of money in the tech industries…or is it the beginning of the end as too much investment chases to little earnings? That remains to be seen.

With LinkedIn’s apparent growth and support – it cannot be ignored as a leading B2B marketing portal, we can start you off.