Hear that? That's the sound of a new Internet bubble inflating. Shares of professional networking site LinkedIn earlier today
surged past $100—more than double the $45 opening price on its first day of
trading as a public company. And that was up from the $32 to $35 the company initially priced shares at for its IPO.
The current price values LinkedIn at about $10 billion. Even assuming its
revenues double this year to $500 million, that would mean LinkedIn is trading at 20 times revenues on a forward-looking basis. In a blog post yesterday, The New Yorker's John Cassidy pointed out that Salesforce.com, "the cloud-computing firm that many consider a
bubble stock, trades at ten times revenues, and Google trades at five and half times its sales. True, LinkedIn has real sales and is profitable, but still, that's getting a tad frothy.
Given
the demand for LinkedIn shares, can you imagine how Internet IPO-starved investors will react to expected offerings for even hotter companies like Groupon, Zynga and, of course, Facebook (already
carrying a roughly $70 billion valuation in the private market)? Mr. Bubble's back.