On Thursday, May 19th, 2011 the social networking industry was changed forever. LinkedIn, a nine-year-old social networking website focusing on connecting professionals, went public, issuing shares for $45. The stock quickly soared to $115 before settling down at about $85.
LinkedIn is the first what may be a wave of social networking IPOs. Investors are doing everything they can to purchase private shares of Facebook, Twitter, Groupon, and Zynga. A similar investing frenzy is almost guaranteed when these companies go public.
This is reminiscent of the dot com bubble that started in 1995 with the Netscape IPO. On August 9th, 1995 Netscape made a last minute decision to double the initial public offering to $28 per share. The stock’s value hit $75 before coming back down to about $58.
From 1995 to 2000 several web based companies went public only to finally go bankrupt in 2000. On March 10th, 2000 the bubble started to burst. The NASDAQ fell from its peak of 5132.52 to less than 2000 by 2001.
Here at InvesTrust, we prefer to look at the forest through the trees. So, what does the LinkedIn IPO mean for the stock market as a whole? It means that there is the potential for a social networking bubble. This bubble could creep into other industries, like communications providers, content providers, and hardware providers. All we can do at this point is be careful not to get caught up in the hype, and to continue to make sound, long-term, investment decisions.
As always, if you have any questions about this article, or would like to discuss it further, please do not hesitate to contact us.