V LinkedIn, Social networking companies before ( 1998 ) and Now.

LinkedIn ( NYSE:LNKD ) the star of the week in stock market after its explosive listing on NYSE on Thursday. But most of the analysts' are talking about social networking bubble and company's valuations are not justifying after gaining more than 100 % on the first day of trading. If we look at the history of social networking companies, It might give us somewhat negative call on the future of the companies, but situation might have changed in terms of public awareness, internet users and advanced technology. 

As we have an example of the company ( PINK:TGLO ), first social networking company listed on stock markets. Company was founded in late 90's and had 20 million users at that time, and there were hardly couple of hundreds internet users. Even the analysts, those were recommending company stock to invest, might not even know TheGlobe or hardly used internet at that time. company was founded in 1994 and went public in 1998, stock of the company jumped 1000 % on the first day of listing. It was very exciting movement according to one of co founder of the company.
It was a social networking company that made more money on its first day of trading than most people see in a lifetime.Then the shares started falling, and as the price dropped, so did the fortunes of its investors and its co-founders.Now company is traded in a Pink Sheet.

This was

Stephan Paternot, one of the co-founders, told CNBC the IPO's broker, Bear Stearns, underpriced the shares to enable its clients to flip the stock for a huge profit.

"Bear Stearns priced us at $8 a share and they had told us two days before the IPO that we had 45 million shares of demand for a three-million share offering. We couldn’t understand why they couldn’t move our price back up," he said.

"Bear Stearns really underpriced us 10 years ago, unfortunately. We did go public, we did raise $30 million but we felt we left $300 million on the table."

Bear Stearns failed in 2008 and was bought by JPMorgan Chase.

Difference Now and Then:

Things are different now, however. LinkedIn, whose shares although opened at $ 80 while the issue price was just $45. It is not that much overvalued as 

Also, many of the other major dot-com companies "now have significant revenue, and many of them are profitable," Paternot said. "There are over a billion Internet users now. Most people who are investing in Internet companies are actually very familiar with the products that they’re using. You have a much better sense now of what the Internet is and what you’re buying."

Companies don't even need to raise capital through IPOs, thanks to alternate vehicles such as the online marketplace Second Market.

Despite his experiences, Paternot still believes in the power of social networking, and the next phase for these companies will be to leverage that power.

"I’d like to thank [Facebook CEO] Mark Zuckerberg for validating the entire social network model," he said.

( Source: CNBC )
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