THE flotations brought back memories of the dotcom boom and the stakes could not have been higher in the City.

Online gaming companies rushed to the London market over the summer with valuations running into hundreds of millions of pounds, testing the nerve of investors who took a beating when technology shares collapsed in 2001.

PartyGaming created the biggest noise when it joined the market in June with a value of £4.64bn - more than British Airways and retailer Boots, despite their well-known brands and tradition of profits growth.

Orders for more than double the number of available shares in PartyGaming were placed ahead of its flotation, while the value of the company reached £7.04bn at the end of July and it was catapulted into the FTSE 100 Index.

PartyGaming was quickly followed on to the market by the likes of Empire Online and 888 Holdings as their owners sought to cash in.

With vast sums being channelled into firms that a decade ago did not exist, the parallels with the dotcom era were obvious to many.

Added to that were concerns about the legality of online gaming in the US, where companies such as PartyGaming generate most of their revenue.

The pessimistic view that online gaming was a fad appeared to gain credence when PartyGaming announced in September that growth in the poker market was slowing, sparking an exodus of investors from the sector.

Overnight, more than £2bn was wiped off the value of the company and shares in a host of rivals, including Sportingbet and Empire Online, were heavily sold.

But the major difference between the online gaming firms and the glut of companies whose shares collapsed when the dotcom bubble burst, was the size of their margins and their ability to generate large profits.

Software company Autonomy was valued at £4.4bn at the height of the dotcom boom, but its pre-tax profits today are a fraction of those being generated in the online gaming sector.

In contrast, Morgan Stanley estimates that PartyGaming will have a turnover of about $960m this year - and more than half of that will be profit.

Confidence in the online gaming sector is high again after PartyGaming said in December that the launch of games such as blackjack had boosted business.

Consolidation among the major operators has also begun, with Austrian company Betandwin this month paying £320.8m for Ongame, the Swedish owner of PokerRoom.com