The valuation of LinkedIn has jumped 30% since the networking site was introduced to the New York stockmarket last Thursday, prompting fears that this is the start of a social media bubble.
The site is now valued at around £2.6 billion, which is unusual for a company that doesn’t yet earn much money. This is a similar story to the other social sites: lots of users, lots of potential – but revenues are low and it’s not quite clear how this will change.
Market investors are keen on grabbing a slice of the social networking pie, which has been difficult until now, as most sites are not listed. Facebook is the real item of interest, and if LinkedIn does well on the market the site may choose to follow suit. Facebook has six times more users than LinkedIn, with over 600 million members.
Currently, Facebook is valued at 32 times its 2010 revenues, the BBC writes. This is an extreme number; in comparison, Google is valued at 6 times earnings, and LinkedIn is now valued at 17 times earnings. The stockmarket float will inject cash into the LinkedIn business, hopefully helping the group to make some money to warrant this high valuation. If not, it may be bubble ahoy for LinkedIn.