At least, there shouldn’t be. We’ve passed that era. Any business of scale and worthy of going public, as LinkedIn did today in spectacular style, isn’t a dotcom. It’s a real business, with significant impact in several important markets. In LinkedIn’s case, those markets include publishing, recruitment, and professional services. So what if they are leveraged over a digital platform that has a “.com” address? At this point, that’s pretty much the entire US economy, not to mention a significant percentage of the “rest of the world.”
I’m tired of the easy comparisons to the dotcom bubble. They simply aren’t accurate.
I agree John, I don’t think a lot people understand the overall potential – they don’t grasp the concept that these data-driven social technologies are just in their creative beginnings, there is so much more room for growth for serving the needs of the information-hungry consumer.
Twitter feels like a dot com for its valuation.
If there is one guy in the world that has his pulse on technology and trends, its John Battelle and I have tremendous respect for John. Having said that, I think we have to look at the business and its PNL and less at its potential. PNL we know, who knows what the slope of future growth or future revenues will look like. What is the appropriate discounting function for potentiality.
Yes they have revenues but to what extent will they be able to move upstream and compete against entrenched & experienced companies? Scale in one area (resume directory with networking capability) does not necessarily translate into expertise in business processes in other areas. While sheer market cap does allow a company the ability to buy revenue via acquisitions… but at what cost? I am always leery of companies that scale parabolically and then need to buy revenue to justify the valuation. Let us assume they are able to grow and purchase revenue through acquisitions. The company’s profits are minuscule, something like $15.6 million in the past four quarters with a $9 billion market value…that’s a PE of around 575. In other words people are willing to pay $575 for every dollar of earnings. Can Linkedin scale their earnings as parabollically? Integrating new business units does not always go smoothly and frequently takes longer than we anticipate. Investors are paying a tremendous amount for “the potential” of Linkedin while absorbing tremendous downside risk.
I don’t think the reference to this being a second bubble has to do with the fact that LinkedIn has a “.com” address. It’s that LinkedIn a social media company, and social media is the new magic pixie dust. Regardless of their future potential, there is too much precedent to know for certain that LinkedIn (or Facebook, or Zynga) will survive and thrive. Atari, AOL, MySpace– the trash bin of history if filled with long-forgotten market leaders that had tremendous potential that later fizzled out. Anytime you have valuations of companies making minuscule (or even modest) profits that reach the level of established companies like Ford or Boeing, you have a bubble. Call it whatever you want, it’ll eventually pop.
forget the nomenclature the “bubble” refers to any company or industry sector whose valuations far exceed traditional norms, and can only be justified through an explanation that involves the phrase “the normal rules don’t apply” or “this time is different”…the red flag should have immediately gone up when some of the smartest minds in the tech and business worlds came together to value the company at $30/share, then raised it to $45/share pre-IPO only to see it skyrocket to $120+/share. Sounds like a lot of people are chasing a dream.
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LinkedIn is a not Pets.com but there is nothing in their fundamentals -$250 million in revenue and $15 million in profits – that justifies a $122 stock price high. The people who bought at this level are going to take a bath in my estimation.
And this is why a lot of people see this as a bubble. I have no doubt Facebook and Groupon are valuable and profitable businesses but I can’t see how they are getting higher valuations than Google, a proven money machine, before even going public. That makes no sense to me.
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$9bn+ cap on $15m profits. C’mon Battelle, who you trying to kid.
It’s really a very good article,I learn so much thing from it,thanks.
I enjoyed reading your post and I like your take on the issue. Thanks.
I have no doubt Facebook and Groupon are valuable and profitable businesses but I can’t see how they are getting higher valuations than Google, a proven money machine, before even going public
The Dot Com era halted with the rise of social media. Given what these social networking sites can do for online businesses, websites transcended the Dot Com label.
John’s always been a cheerleader for this stuff. GNL, “it’s different this time”
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