US Treasury Secretary Larry Summers Raises Spectre of Second Bubble

(By Richard Blackden) His warning came as shares in professional networking site LinkedIn surged for a second day in New York.

Shares in LinkedIn, the world’s largest professional networking site, jumped more than 10pc on Friday after more than doubling on their first day of trading on the Nasdaq on Thursday.

The flotation of LinkedIn, whose investors include Sequoia Capital, an early investor in Apple and Google, had been eagerly anticipated as the first of a slew of offerings that many expect to culminate in Facebook listing. At its peak price on Friday, LinkedIn was valued at $10.1bn (£6.2bn), or almost 27 times its projected sales for this year. Using the same multiple, Facebook would be worth just over $107bn.

“Who could have imagined that the concern with respect to any American financial asset, just two years after the crisis, would be a bubble?” asked Mr Summers at a conference in Beijing, according to Bloomberg. The chief economic adviser tp President Barack Obama during 2009 and 2010 added: “Yet that concern is increasingly raised with respect to American technology.”

Reid Hoffman, LinkedIn’s founder and chairman, now has a stake worth $1.8bn in a company that made profits of just over $2m in the first quarter of the year. While anyone can create a profile on the site for free, LinkedIn says that half of its $93.9m of first-quarter sales came from the subscription services it offers recruitment companies who use the site to help match candidates to jobs. About 30pc of the company’s revenues were generated from advertising.

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Given the rapid expansion of social networking sites in the last five years, few have drawn exact parallels with the dotcom crash that saw the the Nasdaq plunge in the spring of 2001. However, there is concern that companies may struggle to generate the profits needed to match their valuations.

Henry Blodget, a well-known observer of Silicon Valley, said that although shares are not in a second bubble a decade after the first burst, he would have sold his shares in LinkedIn if he had bought any in the flotation.

Shares in LinkedIn closed down 1pc at $93.09 in New York. The company originally sold shares at $45 earlier this week.

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