Linkedin floatation: is this the beginning of the next boom and bust?

LinkedIn is preparing to be the first major social network to go public. The professional network doubled its users in 2010 to more than 90 million. LinkedIn’s blog says: “The number of shares to be offered and the price range for the offering have not yet been determined.”

The floatation is definately good news for founder Founder Reid Hoffman as his 21.4% stake could line his pockets with $642m if the flotation is as successful as expected.

Will Linkedin’s floatation start a flotation frenzy?

Facebook and Twitter will watch intently as real market value will be associated with social networking sites for the first time. Facebook has just raised a further $1.5bn in investments giving it an estimated value of $50bn, these investments include the controversial investment in Facebook by Goldman Sacs earlier this year which included an exclusive share offer to its top clients (U2′s Bono being of of these).

Speculators are anticipating a floatation of the social network giant (FaceBook) to follow next year. Skype, Zynga and Groupon are also being closely watched for impending flotation.

Even though new models of advertising and sales and app hosting fees are developing fast, a big question is how will they make enough money to justify such valuations?

There are sceptics see this video:

Some suspect that post flotation investments create a social networking bubble waiting to burst, and that what will follow is a replay of the dotcom boom and bust of the 90s.

Jay Ritter, a professor of finance at the University of Florida is one such sceptic: “It’s only recently that their earnings have turned positive,” Ritter claims.

LinkedIn has 90 million users, with an unknown number opting to pay for premium features on the network. LinkedIn’s net revenue nearly doubled to $161.4m in the first nine months of 2010, with $1.85m in profit. Only last year, the company moved into in profit.

LinkedIn itself has said that it expects its rate of revenue growth to decline and that it does not expect to be profitable on a GAAP basis in 2011 due to investments in its growth.

Shares traded on secondary markets have so far has depended more on buzz than knowledge of the company’s finances.

David Menlow, president of IPOfinancial.com an independent research firm says: “You’re talking about the secondary markets, which are like the wild west,” said. “Who’s to say what they are really worth?”

What’s interesting to marketers is that Linkedin intends to develop its advertising services in order to allow marketers to target subscribers and users. These plans are further testimony to the general acceptance that that social media advertising has a vital role to play and will inevitably speed up the adoption of social media advertising in the B2B arena.

Yet Facebook now has more than 600 million users, and according to research looks set to hit one billion well ahead of schedule. It has the richest set of data provided by its users and so far is leading the way in development of advertising opportunities, app hosting, and according to the Sunday Times it plans to attract app makers by allowing them to mine and resell data.

Unlike Facebook, LinkedIn offers commercial premium services to paying customers, while basic features and registration are free.

It is difficult not to be influenced by the tidal wave that is Social Media. The power and value of the advertising models offered by each of these giants cannot be ignored. But are we heading towards another .com crash? Has the hype about social media made social network valuations over inflated?

We have already seen popular social networks, bite the dust, remember Myspace?

What will happen if users start leaving social networks, out of boredom or because of concerns about how their confidential data is handled by websites such as Facebook?

What will happen if, as a result, investors become unwilling to pour their money into these social networks?

More likely, as we see businesses and consumers integrate social media into their everyday lives we will experience a market fluctuating and then normalising, but whether the major players will stay in the game or be replaced with substitutes only time will tell.

SHARETweet about this on TwitterShare on LinkedInShare on FacebookShare on Google+Pin on PinterestDigg thisShare on RedditShare on TumblrShare on StumbleUponEmail this to someone

Heather Buckley is Director and co-founder of IT and business training providers Silicon Beach Training. Founded in 1999, Silicon Beach Training run public-scheduled training courses in their Brighton Training Centre as well as bespoke on-site courses worldwide. Popular courses include Social Media Training, Photoshop Training and PRINCE2 Training, which has recently been launched in Birmingham. Heather writes on the Silicon Beach Training blog with a focus on IT, Project Management and Social Media as well as offering Photoshop knowledge from her experience as a photographer.