Steve Dinneen
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Flotation of social network sparks fear of new bubble

SHARES in LinkedIn exploded during their first day of trading, racing more than 170 per cent above their float price of $45 before closing 109.4 per cent higher at $94.25.

The stock hit a peak of $122.70, bringing back memories of the boom of the late 1990s. After achieving a market cap of $4.25bn with its $45-a-share float, already at the top end of its upgraded price-range, the firm soared in its debut to close with a market cap of $8.9bn.

With 2010 earnings of just $15.4m, the shares’ performance values LinkedIn at an astonishing 578 times earnings. It is also trading at an eye-watering 36.6 times its 2010 revenues of $243m.

Professional services social network LinkedIn had already upgraded its listing price by 30 per cent in the days running up to its IPO but attracted an unprecedented amount of interest as investors fell over themselves to get hold of the stock.

The flotation has stoked concerns that Silicon Valley is in the midst of a second bubble. Hype surrounding the upcoming flotations of internet heavyweights such as Facebook, Groupon and Zynga has now reached fever pitch. Facebook has already been valued at more than $70bn based on shares trading on the secondary market, but if the LinkedIn float is anything to go by it could see its value rocket far higher.

Baidu, the number one Chinese search engine, rose 354 per cent on its Nasdaq debut in 2005, but LinkedIn is the first US web-based stock to emulate its success.

LinkedIn’s co-founder and ex-PayPal executive Reid Hoffman made $5.2m selling less than one per cent of his shares. His remaining stake in the company – 21.7 per cent of the voting power – is now worth just shy of $2bn. LinkedIn raised $352.8m on Wednesday by selling about eight per cent of the company.

Analyst Anthony Miller of TechMarketView told City A.M. a lot of day one investors “will be very happy indeed”. He added: “This doesn’t necessarily mean we’re in another bubble but I’m definitely not reaching for my wallet either.”