LinkedIn just an entrée

A few weeks ago we described the float of business-focused social networking site LinkedIn as the great bubble tester.

If the float went particularly well – back then we were talking about a valuation of $US3.3 billion – then we would know that investor appetite for social media stocks was strong.

If it flopped, we could probably discount theories of a new tech bubble building.

Well, we’ve got our answer. Or more specifically, we’ve got nine billion of them.

LinkedIn shares more than doubled in their first day of trade (overnight AEST), soaring from their issue price of $US45 to $US106.

The company, which looked bullish valued at $US3.3 billion, is now worth more than $US9 billion.

The chief executive Jeff Weiner is now sitting on a stake worth $US270 million, while co-founder Reid Hoffman is now worth an impressive $US2.3 billion.

And all this from a company currently turning over about $US375 million, with earnings this year expected to be around $US20 million on bullish predictions.

Based on LinkedIn’s current valuation of $US9 billion, that puts the company on a price-to-earnings ratio of 450 times.

If that’s getting into bubble territory – remember, that suddenly old-fashioned little tech play called Google trades on a P/E ratio of 13 times – then I am not sure what is.

So we can safely say that investors have bought the social media story, which can be summarised like this: We’ve built massive user numbers, we haven’t quite cracked the code in terms of monetising them, but by golly we will – trust us.

To be fair, that is a different story than was being sold during the dotcom boom, where many companies didn’t actually have large user numbers and didn’t have any idea of how to monetise their traffic.

But the story behind these social media sites still has big risks attached, not least of which is finding ways to monetise things that were previously free – that is, free to use or free from advertising – without totally annoying the user base.

Because as Rupert Murdoch and his MySpace executives can tell you, social media popularity can be fleeting.

No matter. We are entrepreneurs and we should be celebrating the brilliant success of the world’s newest billionaire, Reid Hoffman.

The former Pay Pal executive and serial entrepreneur, who has invested in everything from Facebook to Friendster, is a fascinating figure. He’s invested millions of his own money into various start-ups, is an Oxford philosophy graduate, and plays a German board game called Settlers of Catan because it teaches him about entrepreneurship.

Perhaps tonight he might enjoy a celebratory game. He could even invite Facebook chief Mark Zuckerberg and Twitter’s Biz Stone around – they are possibly the next biggest winners from the LinkedIn float.

The success of the LinkedIn float and the clear appetite investors have for social media companies means that Facebook – with its 600 million users – should have no problems achieving a valuation of $75 billion.

Indeed, a valuation of $US100 billion or higher now looks well within reach.

After all, Facebook has arguably shown that it is in a better position to monetise its user base, having grown revenue to around $2 billion.

If you thought the LinkedIn hype was impressive, just wait until that the Facebook float machine gets into gear.