Following the them of my recent posts I am increasingly convinced we are nearing a critical test of our faith in the might of social media companies. Whilst some of them are in enviable dominant positions and have successfully monetised their offering their valuations seem reminiscent of the dotcom bubble.

Take RenRen for example. This is China’s largest social networking site (measured by unique visitors) and adds around 2 million members per month. It had an IPO yesterday on the NYSE that valued it at 67 times earnings (this is over double that of Facebook) and punters went mad for it. At one point the stock went up by 37% and successfully raised the $743 million target.

However from here it has pulled back significantly and the initial sentiment has subsided. Apply common sense and you will see a different picture. RenRen offer social networking in a market that Facebook is banned from, they are in a dynamic sector where the landscape can change hugely and they face a Government who are not afraid to take dramatic action if the feel it necessary.

I feel the current valuations will be hugely tested in 2011 and with it the advertisers belief in social media marketing will be temporarily effected.