Linkedin IPOs: the floodgates for Internet 2.0 bubble?

So that other social networking site, the one for adults…I jest. The other networking site that is more geared towards professionals – Linkedin – went public this morning making many share holders wealthy. Unfortunately I am not on of them even thought I am one of the first 150,000 users, I was hoping when I got the nice email thanking me for being a long time LinkedIn user that it would accompanied with some equity. Wishful thinking. No surprise but Linkedin did very well the first day on the open market: opening at $81, hitting a high over $120 and closing at $93.10. Not a bad first day. Chart below:

With the like of Facebook and Groupon preparing for IPOs next year, does this indicate another tech run? A run that gave us the irrational exuberance of the late 1990s? I do not think so. The original Internet bubble was the wild west. Companies were getting ridiculous valuations for basically have a .com name. We all chased Kozmo.com and Pets.com thinking they were the next GE or USSteel. While there were some companies that emerged from that time – Amazon anyone – there was also a lot of burned investors and liquidation parties. So what is different this time? Well the fact we went through this during the first bubble. Companies such as Linkedin, Facebook and Groupon are under greater scrutiny. Yes we like seeing lots of eyeballs, but now we need to understand and more importantly SEE how you will make money. Having taken time to build their businesses, gaining visitors/clients and focused on the financial statements has placed firms like Linkedin, in a much better position than Webvan. I am sure that when Facebook and Groupon IPO there will be a wave of excitement, but there will not follow up with irrational investments in “dot coms” who are not grounded in business.

I think that is also why the likes of Twitter are not talking about going public. While Twitter speaks about being profitable and while the usage of Twitter continues to grow, there remains questions such as “what is Twitter really for?” Back in 1999 that would have been a good question for a tech company looking to go public. Today, you better have some cash flow  and real income statements if you want to IPO. That is better for both the companies and the investors. Irrational exuberance was fun, but do not need another ride on that merry go round.

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