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Welcome to Internet Bubble - Part II

Welcome to sequel of Internet Bubble - Part II. The way Netscape IPO created first Internet Bubble when its shares jumped from $28 (IPO price) to $75 on first day in 1995, we can see almost similar bubble time reaction to Last week's Linked IPO. The shares were issued at $45 which itself was very high given that just six months back they were at $20 in private market. On first day, it went all the way to $122 before settling down at $94 giving its valuation equal to 40 times of its last year's sales. Is this another bubble around "social networking" companies or what ?

Given this action around LNKD, I won't be surprised to see Facebook as first company having $100 Billion valuation on day of its IPO which would be sometime in 2012. Groupon may have around $15-20 Billion valuation on first day. Are these valuations sustainable. At least folks buying on first day think so since similar concerns were raised in 2004 when Google went IPO. But eventually Google not only grew to its lofty valuations but added 6 times more to it.

While I do believe this is start of new Internet Bubble, I won't bet against it at least in short run. After all first bubble went on for 5 years before it popped with AOL/TWC merger. This bubble would continue to grow. Given that lot of us have been burned by first Internet bubble, I would advise caution in participating in this bubble either on short side or long side. 

My prediction about Linked shares to start gravitating towards its IPO price of $45 especially watch out when lock up period expires in Nov/Dec. If you have to buy into LNKD shares, wait till it comes down between $30-40. That's right price to get into this new puppy on the block !

Have a great week and get ready for Memorial Weekend !

/Shyam

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