A new tech bubble brewing up?

The past month or so saw numerous IT companies and social media platforms lining up for their IPOs. Launched amidst much fanfare, Linkedin’s IPO received a warm reception. Linkedin is now publicly traded on the New York Stock Exchange. The IPO itself was a great success by all counts as the stock proceeded to run up to nearly 100% in the first day of trading. Financial analysts observe that this hasn’t happened to a tech stock for quite a while now since the boom of the late 1990s. The markets clearly seem to have an appetite for tech stocks – at least for now.

Some analysts believe that Linkedin has been overvalued and figures inflated, given that it only had $243 million in revenues in 2010. Others point to the fact that Linkedin already has 100 million users who visit the site frequently, providing ample opportunities to monetise their frequent visits to the website. Linkedin has also changed the way recruitment is done, with most HR managers checking out profiles of prospective candidates before giving out offers.

Greg Becker, CEO of the Silicon Valley Bank, pointed out to Bloomberg that, unlike the period during the dot-com boom, this time the tech companies have better fundamentals. He goes on to cite the example of top social media companies such as Facebook, Twitter, Zynga and Groupon – who all have real business revenues and are profitable already:

"The same is the case with start-ups today”, Becker said. “You have companies today that are raising $500,000 or $750,000 that already have their first revenue streams, and in some cases are already profitable.”

So, do you think a new tech bubble is brewing up? Would you invest in Linkedin shares at the current valuations? Pipon Solutions invites your views.