Over the course of a week, the valuation of LinkedIn leading up to its initial public offering on Friday jumped 30% from $3 billion to $4.1 billion. According to SEC filings, the social network for professionals will sell shares 7,840,000 for $42 to $45 rather than the $32 to $35 range announced last week. Reuters reported this morning that despite doubling revenues over the course of the past year, LinkedIn will not report a profit "based on U.S. generally accepted accounting principles." Not since the final fateful days of the dot-com bubble in 2000 has America seen an IPO price inflate so quickly.
Will LinkedIn be the first casualty of the social media bubble? Or will they be the first success story? That ought to depend on the investors, but analysts already seem pretty skeptical based on precedent. With companies like Facebook mulling over an IPO in the neighborhood of $100 billion--a whopping 50 times its expected profits--skeptics say that social media companies are dangerously overvalued. (LinkedIn's valuation versus earnings profile is even more extreme--$4.1 billion puts LinkedIn's valuation at 88 times their earnings.) The outcome of a similar social media company's IPO doesn't give reason for optimism. Though initially surrounded by fanfare, a Chinese version of Facebook called Renren hit the markets at $14 per share and soared 50% only to plummet soon thereafter. Shares now trade at about $12.50.