At the turn of the millennium, investors learned a hard lesson
about betting serious capital on untested technology ventures with
minimal cash flow and ambitious growth plans. Trillions of dollars
were destroyed when the dot-com bubble burst, an effect compounded
by the terrible events of September 11, 2001.
A decade later, LinkedIn (LNKD), a professional social-networking
site with 100 million or more registered users, filed for its
initial public offering. Investors snapped up the shares at a
valuation of $45, and in the site's first day of trading on
Thursday, it quickly doubled, closing at $94.25 per share.
What does the Santa Monica, California-based site offer to justify
such a rich valuation? Well, for one thing, it resembles Facebook.
In the absence of an actual Facebook IPO, investors are desperate
to get a piece of the social media action. Everyone wants to ride
on the coattails of a company which could be "the next Google"
Unlike many of the speculative ventures of the dot-com era,
LinkedIn at least has some profits: $15.4 million on revenues
of $352.8 million. At a more rational level, the company's
offering might make sense. At more than 500 times earnings,
however, it seems clear that institutional and retail investors are
just champing at the bit until Facebook finally goes public.