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The Dot-com Bubble Revisited

Will the new IPO craze cause a new tech bubble to burst?
by

Jennifer Fong

on 15 February 2011

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Transcript of The Dot-com Bubble Revisited

The Tech Bubble of Yore Way back when in 1995... The Dot-com Bubble Revisited By: Jenn Fong, Aida Fogel & Ryan Faughnder We saw the rise of many Internet based companies, or "dot-coms," that we have come to know and love Between 1994 and 1998: 1994: Amazon
1995: Craigslist, Geocities, Yahoo, MSN, eBay NASDAQ Composite Through Dot-com Bubble POP! 1998-99: Interest rates fall, leading more investors 1996: eToys 1998: Boo.com, Flooz.com, Go.com to take higher risks in their investments (and some that we probably don't remember) ... Some of these entrepreneurs had realistic plans and business sense, but most did not. They sold their ideas to investors based on the novelty of the dot-com concept. Companies are still popping up: 1998: Kozmo.com, Pets.com, Google 1999: Gov.Works.com, Kibu.com, MVP.com, Webvan... May 1999: eToys goes public, offers first IPO Dec 30, 1999: The UK's FTSE Index, which looks at the most highly capitalized companies on the London Stock Exchange, peaked at 6,950.60 Some analysts speculate that the business spending frenzy
might have been fueled by the investors' preparations for the
Y2K switchover. When Y2K proved to be a bust, business
spending declined. Jan 14, 2000: DOW Jones Peaks Jan 30, 2000: Superbowl XXXIV features 17 dot-com companies; publicity helps spur more investment Mar 10, 2000: Dot-com bubble reaches peak Mar 13, 2000: Market opens 4% lower on Monday than it closed on Friday, possibly due to multi-billion dollar sell orders for companies like Cisco, IBM, Dell. These orders were all processed simultaneously by chance. Between 1999 and 2000, the U.S. Federal Reserve
increased rates 6 times, and the economy slowed. The dot-com bubble effectively burst on Mar 10, 2000. NASDAQ peaked at 5,048.62 (with intra-day peak 5,132.52) - more than double its value from the year before. NASDAQ processed all of its multi-billion dollar sell orders Massive business spending in preparation for Y2K; Poor performance of Internet retailers after Dec 1999 Christmas season Rapidly increasing stock prices Market confidence Individual speculation Widely available venture capital due to novelty of dot-coms at once (by chance) Causes: when nothing happened, hiring freezes, layoffs and consolidations happened (especially in the dot-com sector) Precursors: Facebook (2004) Twitter (2006) Groupon (2008) AOL + Huffington Post (2011) Said to be worth $60 billion
$1.76 billion revenue expected in 2011
A marketer’s dream
IPO in 2012: everyone wants a piece of Facebook $150 million revenue in 2011 expected
Google and Facebook evaluating potential buy
Is it really worth 10 billion? Fastest growing company ever
Revenue of $800 million a year
$15 billion valuation
Super Bowl Ads: dot-com deja vu? $31 million revenue in 2010
25 million unique monthly visitors
Acquired by AOL for $315 million
What does the deal mean? An "initial public offering A.K.A. when a company issues common stock or shares for the public to buy What is an IPO? Advantages of going public: Disadvantages of going public: Opens a company to a whole new stream of revenue, meaning they don't just have to rely on venture capital Risky; tough to predict how IPOs will pan out Is This a New Tech Bubble? The Rise of AOL Business based on connecting people to the internet, giving them lots of services in the same place
About half of people going online did so through AOL. Going Down... 2002: 35 million subscribers… 2011: 4 million
The Dirty Secret: AOL is scamming old people… Back to the Drawing Board AOL’s ISP server/internet provider model quickly became obsolete when it became clear that people could easily get on the internet without it
AOL’s newest exec Tim Armstrong realizes provider model is dead
Wants to become a content-based model Why the Huffington Post? Armstrong’s business theory: Content + Appealing to women = success.
New strategy focuses on web optimization, content management Good Business (Maybe), Bad Journalism Nick Denton: AOL is becoming “a roach motel for blogs” – Daily Beast
Huffpost reported its first profitable year in 2010 Tech Bubble: Then and Now AOL overpaid by any business analysis.
Facebook and Google are in low-level talks about buying Twitter – WSJ
Estimates are between $8 and 10 billion. Before, it was only valued at $4 billion Some Key Differences: Groupon, Facebook, HuffPost, Twitter and the like are all privately-held companies expanding with venture capital
THIS IS NOT A STOCK MARKET BUBBLE… yet
Also, in 1999, many of the companies didn’t have actual business models
“We are seeing large deals getting done in a few days with little or no due diligence. Investors are showing up at the first meeting with tem sheets. I have never seen phases like this end nicely." – Fred Wilson
No longer a bubble for Pets.com-type wannabes – Groupon, Twitter and Facebook all have ideas and niches
Full transcript