Revolutionary Measures

Bubble trouble?

Image representing LinkedIn as depicted in Cru...

Image via CrunchBase

Tomorrow (Thursday) sees the much trumpeted flotation of LinkedIn, which is tipped to value the company at £2.6 billion. And it is likely to be followed by a host of other social media sites, from Facebook and Twitter to the likes of Groupon and Zynga, with similar stratospheric valuations. You’d be forgiven in thinking the global recession was over as investors seem to be scrambling to throw money at anything vaguely social.

It does remind me a lot of the previous dotcom bubble (yes, I am that old) where the likes of Lastminute.com in the UK achieved market valuations greater than unfashionable bricks and mortar businesses such as British Airways.

The question a lot of commentators are asking is – are we in another bubble and what happens when it pops? I’m not an economist but when you look at LinkedIn, which has said it won’t make a profit in 2011 and see that it values it at 17 times 2010 revenues (Google by contrast is at six times revenue) I’d worry. Essentially you are taking a punt on LinkedIn extending its offering and delivering future profits to match the valuation and while it has a strong, differentiated, brand things can change quickly in social media. Just look at the plummeting fortunes of early stars MySpace and Bebo……………..

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May 18, 2011 Posted by | Uncategorized | , , , , , , , , , , , | 1 Comment

   

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