LinkedIn’s incredible IPO success tells us one thing – that many other tech companies are more confident than ever been about going public. Bet before we go there let’s take look at what happened. The company went public at $45 per share and shot up quickly past $100 and has settled around $102.39 at the time of this writing – a market cap just under $9B. The company has everything going for it – it is in the social networking space and focuses on the business side where you could argue easily that there is easier money to be made than a consumer site like Facebook.
Moreover, there are countless investors locked out of investing in Twitter and Facebook and LinkedIn is the only way for these people to get into the social networking investment game. Finally, the tech space has done extremely well this past year – so one can easily argue that many tech investors have made a killing and are confident they can continue to do so.
Of course this sort of meteoric growth is reminiscent of the dotcom bubble and this certainly isn’t the first time in recent memory where arguments have been made by both sides that the tech valuations are too high. Last December I touched on this with an entry titled A New Tech Bubble and last month in another piece titled New Research Explains Why There is no Tech Bubble.
And as you would expect, many others are weighing in as well on the matter. Advertising Age had a fascinating piece about how LinkedIn is a scary monster. Problem is the article assumes LinkedIn is an employment site by comparing it to TMP Worldwide’s Monster.com. It goes on to say it is overvalued in comparison. The article fails to take into account that there are an array of new monetizable social networking services as well as tremendous advertising potential at LinkedIn.
Seeking Alpha takes a similar route – and explains rightly that 49% of the company’s revenues are coming from hiring solutions. The site explains that a jobs recession will crater the business social networking site’s revenue.
Henry Blodget at Business Insider has a balanced take on the company and its prospects – there are – as you would expect, positives and negatives but he thinks the company is not a good investment at these levels.
I can see both sides to this argument – a lot of the future for the company has to do with partnering with other companies to generate revenue through sponsorships and ads as well as enhanced advertising solutions.
But the point of this post today is to emphasize what I believe to be a turning point in the tech IPO space. Any company looking to sell in order to pay back shareholders seems to have not only a viable alternative but perhaps a better one for its stakeholders and employees.
After all, even the companies which seemed like great strategic acquirers like Cisco have shown they aren’t necessarily able to produce better products and a better environment for employees. This is one of the reasons why the Flip business unit was closed down at Cisco and WebEx and Linksys may soon be sold off.
The concern is the same one as during past boom bust cycles however – too much money choosing too few deals will drive up prices. And this problem will now lead to too much money spurring easy investment in too many companies in similar spaces which could potentially take the margins out of business sector after sector. Think CLECs in 2000.
Markets have been more rational these days than they were back in 1999 where anything went and I sincerely hope we see measured growth in tech investing and things do not get out of control.