Is another dot-com bubble looming?

bursting bubble Pictures, Images and Photos
Recently the online networking website, LinkedIn had their IPO and the price more than doubled in the first day of trading. Such a big jump in the stock price of this company doesn’t really reflect the true value of it, but rather the perceived potential it has. LinkedIn is not the only online company to experience this in recent months. Facebook was valued at over $50 billion even though it is making a tiny fraction of that right now. To many people this points to another tech bubble forming like we had in 2000 which caused almost 40% of the NASDAQ to lose its value and changed the way investors looked at the internet.

If we are in the midst of a tech bubble once again, then this one is still different from the last one in a couple of key ways. Firstly, leading up to the 2000 bubble burst, investors could not throw their money at newly formed online businesses fast enough. Many times it wasn’t even a business but just some idea that garnered millions in investments. Some of the ideas were good, but others were pathetic. Today investors are throwing big money at online businesses but most already have a proven brand and online community like Facebook, LinkedIn and Groupon.

The second way that this potential bubble differs from the one that occurred a little over a decade ago is that investors are looking for companies that are actually making some money. Beyond just an online community and known brand, companies like Groupon are actually earning revenue. This was not the case in the previous tech bubble and that is an important distinction to make.

Still, bubbles are never good for the market and the economy in general. All bubbles eventually burst and if this is indeed a bubble then the fragile economy we are in today cannot afford it to burst. The best case scenario to this is that investors slowly and gradually take a step back from falling in love with these online businesses to a more realistic level. I think LinkedIn is a good website with a real shot at being a solid business. However, doubling its share price upon entering the market seems a little overboard to me.