Venturing in to some history this morning....
In finance, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) fell exactly 508 points to 1,738.74 (22.61%).[1] In Australia and New Zealand, the 1987 crash is also referred to as "Black Tuesday" because of the time zone difference.
The terms Black Monday and Black Tuesday are also respectively applied to October 19 and October 20, 1929, which occurred after Black Thursday on October 15, which started the Stock Market Crash of 1929.
The biggest ever single-day crash on Sept. 29, 2008, came after the U.S. House of Representatives rejected the government's $700 billion bank bailout plan. This Dow drop obliterated $1.2 trillion in market value.
News that Wachovia (which was acquired by Wells Fargo in 2008) had to sell its banking assets to Citigroup (NYSE: C) the same day didn't help, nor did the collapse of a number of European banks.
Amidst the subprime crisis, the Dow's second biggest single-day drop happened six days later on Oct. 15, 2008.
This time, recession talk fueled the 7.9% decline. A weak sales report, bleak forecasts from the U.S. Federal Reserve, and sober comments from Fed Chairman Ben Bernanke all contributed to the day's plummet. (Which was still far off from the largest-ever percentage loss – 22.6% on "Black Monday," Oct. 19, 1987.)
Subprime financial crisis-related events that triggered the top two largest single-day Dow drops also account for the fourth, fifth, and tenth largest. The Dow hit an (at the time) all-time high on Oct. 9, 2007, closing at 14,164.43; by March 5, 2009 – a little under 18 months later – it had fallen more than 50% to 6,594.44.
The third-largest single day crash occurred on Sept. 17, 2001, seven years before the subprime crisis would beat the 684-point drop. Trading resumed for the first time following the Sept. 11 terrorist attacks – the longest trading pause since the Great Depression. The airline industry suffered the most; weakness in airline stocks would send the Dow Jones Transportation Average down 15% this day.
Fast forward 10 years to Aug. 8, 2011. Wall Street suffered its worst drop since 2008's subprime crisis on news that the United States might lose its AAA credit rating. U.S. stocks declined 15% over the two weeks leading up to the Aug. 8 fall.
Market Crashes: The Dotcom Crash
When: March 11, 2000 to October 9, 2002
Where: Silicon Valley (for the most part)
Percentage Lost From Peak to Bottom: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11.
Synopsis: Decades before the word "dotcom" slipped past our lips as the answer to all of our problems, the internet was created by the U.S. military, who vastly underestimated how much people would want to be online. Commercially the internet started to catch on in 1995 with an estimated 18 million users. The rise in usage meant an untapped market--an international market. Soon, speculators were barely able to control their excitement over the "new economy."
Companies underwent a similar phenomenon to the one that gripped Seventeenth century England and America in the early eighties: investors wanted big ideas more than a solid business plan. Buzzwords like networking, new paradigm, information technologies, internet, consumer-driven navigation, tailored web experience, and many more examples of empty double-speak filled the media and investors with a rabid hunger for more. The IPOs of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever.
Obviously, there was a problem. The first shots through this bubble came from the companies themselves: many reported huge losses and some folded outright within months of their offering. Siliconaires were moving out of $4 million estates and back to the room above their parents' garage. In the year 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading. In 2001 the number of IPOs dwindled to 76, and none of them doubled on the first day of trading.
Many argue that the dotcom boom and bust was a case of too much too fast. Companies that couldn't decide on their corporate creed were given millions of dollars and told to grow to Microsoft size by tomorrow.
The dot-com bubble was a historic speculative bubble covering roughly 1997–2000 (with a climax on March 10, 2000, with the NASDAQ peaking at 5,132.52 in intraday trading before closing at 5,048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the Internet sector and related fields. While the latter part was a boom and bust cycle, the Internet boom is sometimes meant to refer to the steady commercial growth of the Internet with the advent of the World Wide Web, as exemplified by the first release of the Mosaic web browser in 1993, and continuing through the 1990s.
The period was marked by the founding (and, in many cases, spectacular failure) of several new Internet-based companies commonly referred to as dot-coms. Companies could cause their stock prices to increase by simply adding an “e-” prefix to their name or a “.com” to the end, which one author called “prefix investing.” A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics, such as P/E ratio, in favor of basing confidence on technological advancements.
The collapse of the bubble took place during 1999–2001. Some companies, such as pets.com and Webvan, failed completely. Others – such as Cisco, whose stock declined by 86% – lost a large portion of their market capitalization but remained stable and profitable. Some, such as eBay.com, later recovered and even surpassed their dot-com-bubble peaks. The stock of Amazon.com came to exceed $700 per share, for example, after having gone from $107 to $7 in the crash.
The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
Terminology
The "dot-com bubble" was also called the dot-com boom, the Internet bubble, the dot-com collapse, and the information technology bubble.
Bubble growth
The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
Due to the rise in the commercial growth of the Internet, venture capitalists saw record-setting growth as "dot-com" companies experienced meteoric rises in their stock prices and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates of 1998–99 helped increase the start-up capital amounts. A canonical “dot-com” company’s business model relied on harnessing network effects by operating at a sustained net loss and building market share (or mind share). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto “get big fast” reflected this strategy.
This occurred in industrialized nations due to the reducing “digital divide” in the late 1990s, and early 2000s. Previously, individuals were less capable of accessing the Internet, many stopped by lack of local access/connectivity to the infrastructure, and/or the failure to understand use for Internet technologies. The absence of infrastructure and a lack of understanding were two major obstacles that previously obstructed mass connectivity. For these reasons, individuals had limited capabilities in what they could do and what they could achieve in accessing technology. Increased means of connectivity to the Internet than previously available allowed the use of ICT (Information and Communications Technology) to progress from a luxury good to a necessity good. As connectivity grew, so did the potential for venture capitalists to take advantage of the growing field. The functionalism, or impacts of technologies driven from the cost effectiveness of new Internet websites ultimately influenced the demand growth during this time.
Free spending
According to dot-com theory, an Internet company’s survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. For instance, Google and Amazon.com did not see any profit in their first years. Amazon was spending to alert people to its existence and expand its customer base, and Google was busy spending to create more powerful machine capacity to serve its expanding web search engine.[citation needed] The phrase “Get large or get lost” was the wisdom of the day.[11] At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit—or, in some cases, earned any revenue whatsoever. In such a situation, a company’s lifespan was measured by its burn rate: that is, the rate at which a non-profitable company lacking a viable business model ran through its capital.
Public awareness campaigns were one of the ways in which dot-coms sought to expand their customer bases. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured 16 dot-com companies that each paid over $2 million for a 30-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away $10 million to a lucky contestant on an April 15, 2000 half-hour primetime special that was broadcast on CBS.
Not surprisingly, the “growth over profits” mentality and the aura of “new economy” invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options instead of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the “next Silicon Valley” by building network-enabled office space to attract Internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. Companies that produced network equipment like Nortel Networks were irrevocably damaged by such over-extension; Nortel declared bankruptcy in early 2009. Companies like Cisco, which did not have any production facilities, but bought from other manufacturers, were able to leave quickly and actually do well from the situation as the bubble burst and products were sold cheaply.
In the struggle to become a technology hub, many cities and states used tax money to fund technology conference centers, advanced infrastructure, and created favorable business and tax law to encourage development of the dotcom industry in their locale. Virginia’s Dulles Technology Corridor is a prime example of this activity. Large quantities of high-speed fiber links were laid, and the State and local governments gave tax exemptions to technology firms. Many of these buildings could be viewed along I-495, after the burst, as vacant office buildings.
Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. The investments were far out of proportion to both their current and projected cash flow, but this was not publicly acknowledged until as late as 2001 and 2002. Due to the highly networked nature of the IT industry, this quickly led to problems for small companies dependent on contracts from operators. One example is of a then Finnish m
Mobile network company Sonera, which paid huge sums in German broadband auction then dubbed as 3G licenses. Third-generation networks however took years to catch on and Sonera ended up as a part of TeliaSonera, then simply Telia.
Aftermath
On January 10, 2000, America Online (now Aol.), a favorite of dot-com investors and pioneer of dial-up Internet access, announced plans to merge with Time Warner, the world’s largest media company, in the second-largest M&A transaction worldwide.[12] The transaction has been described as “the worst in history”.[13][14] Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped “AOL” from its name.
Several communication companies could not weather the financial burden and were forced to file for bankruptcy. One of the more significant players, WorldCom, was found engaging in illegal accounting practices to exaggerate its profits on a yearly basis. WorldCom was one of the last standing combined competitive local exchange and inter-exchange companies and struggled to survive after the implementation of the Telecommunications Act of 1996. This Act favored incumbent players formerly known as Regional Bell Operating Companies (RBOCS) and led to the demise of competition and the rise of consolidation and a current day oligopoly ruled by lobbyist saturated powerhouses AT&T and Verizon. [15]
WorldCom’s stock price fell drastically when this information went public, and it eventually filed the third-largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications.[dubious – discuss] Companies such as Nortel, Cisco, and Corning were at a disadvantage because they relied on infrastructure that was never developed which caused the stock of Corning to drop significantly.
Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors, speculators or cybersquatters. Several companies and their executives were accused or convicted of fraud for misusing shareholders’ money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com, eBay, and Google have become industry-dominating mega-firms.
The stock market crash of 2000–2002 caused the loss of $5 trillion in the market value of companies from March 2000 to October 2002. The September 11, 2001, attacks accelerated the stock market drop; the NYSE suspended trading for four sessions. When trading resumed, some of it was transacted in temporary new locations.
More in-depth analysis shows that 48% of the dot-com companies survived through 2004. With this, it is safe to assume that the assets lost from the stock market do not directly link to the closing of firms. More importantly, however, it can be concluded that even companies who were categorized as the “small players” were adequate enough to endure the destruction of the financial market during 2000–2002. Additionally, retail investors who felt burned by the burst transitioned their investment portfolios to more cautious positions.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Turning to the long-term legacy of the bubble, Fred Wilson, who was a venture capitalist during it, said:
“A friend of mine has a great line. He says ‘Nothing important has ever been built without irrational exuberance’. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure. All that stuff has allowed what we have today, which has changed all our lives... that’s what all this speculative mania built”.
As the technology boom receded, consolidation and growth by market leaders caused the tech industry to come to more closely resemble other traditional U.S. sectors. As of 2014, ten information technology firms are among the 100 largest U.S. corporations by revenues: Apple, Hewlett-Packard, IBM, Microsoft, Amazon.com, Google, Intel, Cisco Systems, Ingram Micro, and Oracle.
List of companies significant to the bubble
Acquisitions
In finance, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) fell exactly 508 points to 1,738.74 (22.61%).[1] In Australia and New Zealand, the 1987 crash is also referred to as "Black Tuesday" because of the time zone difference.
The terms Black Monday and Black Tuesday are also respectively applied to October 19 and October 20, 1929, which occurred after Black Thursday on October 15, which started the Stock Market Crash of 1929.
The biggest ever single-day crash on Sept. 29, 2008, came after the U.S. House of Representatives rejected the government's $700 billion bank bailout plan. This Dow drop obliterated $1.2 trillion in market value.
News that Wachovia (which was acquired by Wells Fargo in 2008) had to sell its banking assets to Citigroup (NYSE: C) the same day didn't help, nor did the collapse of a number of European banks.
Amidst the subprime crisis, the Dow's second biggest single-day drop happened six days later on Oct. 15, 2008.
This time, recession talk fueled the 7.9% decline. A weak sales report, bleak forecasts from the U.S. Federal Reserve, and sober comments from Fed Chairman Ben Bernanke all contributed to the day's plummet. (Which was still far off from the largest-ever percentage loss – 22.6% on "Black Monday," Oct. 19, 1987.)
Subprime financial crisis-related events that triggered the top two largest single-day Dow drops also account for the fourth, fifth, and tenth largest. The Dow hit an (at the time) all-time high on Oct. 9, 2007, closing at 14,164.43; by March 5, 2009 – a little under 18 months later – it had fallen more than 50% to 6,594.44.
The third-largest single day crash occurred on Sept. 17, 2001, seven years before the subprime crisis would beat the 684-point drop. Trading resumed for the first time following the Sept. 11 terrorist attacks – the longest trading pause since the Great Depression. The airline industry suffered the most; weakness in airline stocks would send the Dow Jones Transportation Average down 15% this day.
Fast forward 10 years to Aug. 8, 2011. Wall Street suffered its worst drop since 2008's subprime crisis on news that the United States might lose its AAA credit rating. U.S. stocks declined 15% over the two weeks leading up to the Aug. 8 fall.
Market Crashes: The Dotcom Crash
When: March 11, 2000 to October 9, 2002
Where: Silicon Valley (for the most part)
Percentage Lost From Peak to Bottom: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11.
Synopsis: Decades before the word "dotcom" slipped past our lips as the answer to all of our problems, the internet was created by the U.S. military, who vastly underestimated how much people would want to be online. Commercially the internet started to catch on in 1995 with an estimated 18 million users. The rise in usage meant an untapped market--an international market. Soon, speculators were barely able to control their excitement over the "new economy."
Companies underwent a similar phenomenon to the one that gripped Seventeenth century England and America in the early eighties: investors wanted big ideas more than a solid business plan. Buzzwords like networking, new paradigm, information technologies, internet, consumer-driven navigation, tailored web experience, and many more examples of empty double-speak filled the media and investors with a rabid hunger for more. The IPOs of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever.
Obviously, there was a problem. The first shots through this bubble came from the companies themselves: many reported huge losses and some folded outright within months of their offering. Siliconaires were moving out of $4 million estates and back to the room above their parents' garage. In the year 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading. In 2001 the number of IPOs dwindled to 76, and none of them doubled on the first day of trading.
Many argue that the dotcom boom and bust was a case of too much too fast. Companies that couldn't decide on their corporate creed were given millions of dollars and told to grow to Microsoft size by tomorrow.
The dot-com bubble was a historic speculative bubble covering roughly 1997–2000 (with a climax on March 10, 2000, with the NASDAQ peaking at 5,132.52 in intraday trading before closing at 5,048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the Internet sector and related fields. While the latter part was a boom and bust cycle, the Internet boom is sometimes meant to refer to the steady commercial growth of the Internet with the advent of the World Wide Web, as exemplified by the first release of the Mosaic web browser in 1993, and continuing through the 1990s.
The period was marked by the founding (and, in many cases, spectacular failure) of several new Internet-based companies commonly referred to as dot-coms. Companies could cause their stock prices to increase by simply adding an “e-” prefix to their name or a “.com” to the end, which one author called “prefix investing.” A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics, such as P/E ratio, in favor of basing confidence on technological advancements.
The collapse of the bubble took place during 1999–2001. Some companies, such as pets.com and Webvan, failed completely. Others – such as Cisco, whose stock declined by 86% – lost a large portion of their market capitalization but remained stable and profitable. Some, such as eBay.com, later recovered and even surpassed their dot-com-bubble peaks. The stock of Amazon.com came to exceed $700 per share, for example, after having gone from $107 to $7 in the crash.
The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
Terminology
The "dot-com bubble" was also called the dot-com boom, the Internet bubble, the dot-com collapse, and the information technology bubble.
Bubble growth
The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
Due to the rise in the commercial growth of the Internet, venture capitalists saw record-setting growth as "dot-com" companies experienced meteoric rises in their stock prices and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates of 1998–99 helped increase the start-up capital amounts. A canonical “dot-com” company’s business model relied on harnessing network effects by operating at a sustained net loss and building market share (or mind share). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto “get big fast” reflected this strategy.
This occurred in industrialized nations due to the reducing “digital divide” in the late 1990s, and early 2000s. Previously, individuals were less capable of accessing the Internet, many stopped by lack of local access/connectivity to the infrastructure, and/or the failure to understand use for Internet technologies. The absence of infrastructure and a lack of understanding were two major obstacles that previously obstructed mass connectivity. For these reasons, individuals had limited capabilities in what they could do and what they could achieve in accessing technology. Increased means of connectivity to the Internet than previously available allowed the use of ICT (Information and Communications Technology) to progress from a luxury good to a necessity good. As connectivity grew, so did the potential for venture capitalists to take advantage of the growing field. The functionalism, or impacts of technologies driven from the cost effectiveness of new Internet websites ultimately influenced the demand growth during this time.
Free spending
According to dot-com theory, an Internet company’s survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. For instance, Google and Amazon.com did not see any profit in their first years. Amazon was spending to alert people to its existence and expand its customer base, and Google was busy spending to create more powerful machine capacity to serve its expanding web search engine.[citation needed] The phrase “Get large or get lost” was the wisdom of the day.[11] At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit—or, in some cases, earned any revenue whatsoever. In such a situation, a company’s lifespan was measured by its burn rate: that is, the rate at which a non-profitable company lacking a viable business model ran through its capital.
Public awareness campaigns were one of the ways in which dot-coms sought to expand their customer bases. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured 16 dot-com companies that each paid over $2 million for a 30-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away $10 million to a lucky contestant on an April 15, 2000 half-hour primetime special that was broadcast on CBS.
Not surprisingly, the “growth over profits” mentality and the aura of “new economy” invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options instead of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the “next Silicon Valley” by building network-enabled office space to attract Internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. Companies that produced network equipment like Nortel Networks were irrevocably damaged by such over-extension; Nortel declared bankruptcy in early 2009. Companies like Cisco, which did not have any production facilities, but bought from other manufacturers, were able to leave quickly and actually do well from the situation as the bubble burst and products were sold cheaply.
In the struggle to become a technology hub, many cities and states used tax money to fund technology conference centers, advanced infrastructure, and created favorable business and tax law to encourage development of the dotcom industry in their locale. Virginia’s Dulles Technology Corridor is a prime example of this activity. Large quantities of high-speed fiber links were laid, and the State and local governments gave tax exemptions to technology firms. Many of these buildings could be viewed along I-495, after the burst, as vacant office buildings.
Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. The investments were far out of proportion to both their current and projected cash flow, but this was not publicly acknowledged until as late as 2001 and 2002. Due to the highly networked nature of the IT industry, this quickly led to problems for small companies dependent on contracts from operators. One example is of a then Finnish m
Mobile network company Sonera, which paid huge sums in German broadband auction then dubbed as 3G licenses. Third-generation networks however took years to catch on and Sonera ended up as a part of TeliaSonera, then simply Telia.
Aftermath
On January 10, 2000, America Online (now Aol.), a favorite of dot-com investors and pioneer of dial-up Internet access, announced plans to merge with Time Warner, the world’s largest media company, in the second-largest M&A transaction worldwide.[12] The transaction has been described as “the worst in history”.[13][14] Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped “AOL” from its name.
Several communication companies could not weather the financial burden and were forced to file for bankruptcy. One of the more significant players, WorldCom, was found engaging in illegal accounting practices to exaggerate its profits on a yearly basis. WorldCom was one of the last standing combined competitive local exchange and inter-exchange companies and struggled to survive after the implementation of the Telecommunications Act of 1996. This Act favored incumbent players formerly known as Regional Bell Operating Companies (RBOCS) and led to the demise of competition and the rise of consolidation and a current day oligopoly ruled by lobbyist saturated powerhouses AT&T and Verizon. [15]
WorldCom’s stock price fell drastically when this information went public, and it eventually filed the third-largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications.[dubious – discuss] Companies such as Nortel, Cisco, and Corning were at a disadvantage because they relied on infrastructure that was never developed which caused the stock of Corning to drop significantly.
Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors, speculators or cybersquatters. Several companies and their executives were accused or convicted of fraud for misusing shareholders’ money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com, eBay, and Google have become industry-dominating mega-firms.
The stock market crash of 2000–2002 caused the loss of $5 trillion in the market value of companies from March 2000 to October 2002. The September 11, 2001, attacks accelerated the stock market drop; the NYSE suspended trading for four sessions. When trading resumed, some of it was transacted in temporary new locations.
More in-depth analysis shows that 48% of the dot-com companies survived through 2004. With this, it is safe to assume that the assets lost from the stock market do not directly link to the closing of firms. More importantly, however, it can be concluded that even companies who were categorized as the “small players” were adequate enough to endure the destruction of the financial market during 2000–2002. Additionally, retail investors who felt burned by the burst transitioned their investment portfolios to more cautious positions.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Turning to the long-term legacy of the bubble, Fred Wilson, who was a venture capitalist during it, said:
“A friend of mine has a great line. He says ‘Nothing important has ever been built without irrational exuberance’. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure. All that stuff has allowed what we have today, which has changed all our lives... that’s what all this speculative mania built”.
As the technology boom receded, consolidation and growth by market leaders caused the tech industry to come to more closely resemble other traditional U.S. sectors. As of 2014, ten information technology firms are among the 100 largest U.S. corporations by revenues: Apple, Hewlett-Packard, IBM, Microsoft, Amazon.com, Google, Intel, Cisco Systems, Ingram Micro, and Oracle.
List of companies significant to the bubble
- Boo.com – spent $188 million in just six months[19] in an attempt to create a global online fashion store that went bankrupt in May 2000.
- Books-a-Million - Saw its stock price soar by over 1,000% in one week simply by announcing an updated website on November 25, 1998. The company’s share price rose from around $3 previously to an all-time closing high of $38.94 on November 27 and an intra-day high of $47.00 on November 30, before quickly pulling back to around $10 two weeks later. By 2000, the share price had returned to $3.
- Broadcast.com – Acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban a multi-billionaire. The site is now defunct and redirects to Yahoo!’s home page.
- e.Digital Corporation (EDIG) – Long-term, unprofitable OTCBB-traded company founded in 1988 previously named Norris Communications. Changed its name to e.Digital in January 1999 when stock was at $0.06 level. The stock rose rapidly in 1999 and went from closing price of $2.91 on December 31, 1999, to intraday high of $24.50 on January 24, 2000. It quickly retraced and has traded between $0.07 and $0.165 in 2010.[24] As of 2013, the stock continues to trade low, ranging between $0.12 and $0.19 a share[25]
- FreeInternet.com – Filed for bankruptcy in October 2000, soon after canceling its initial public offering. At the time Freeinternet.com was the fifth-largest ISP in the United States, with 3.2 million users.[26] Famous for its mascot Baby Bob, the company lost $19 million in 1999 on revenues of less than $1 million
- GeoCities – Purchased by Yahoo! for $3.57 billion in January 1999. Yahoo! closed GeoCities on October 26, 2009
- theGlobe.com – Social networking service, that went live in April 1995 and made headlines by going public on November 1998 and posting the largest first day gain of any IPO in history up to that date. The CEO became in 1999 a visible symbol of the excesses of dot-com millionaires
- GovWorks.com – Doomed dot-com featured in the documentary film Startup.com
- inktomi – Valuation of $25 billion in March 2000
- InfoSpace – In March 2000 this stock reached a price $1,305 per share, but by April 2001 the price had crashed down to $22 a share
- Kozmo.com – offered one-hour local delivery of a number of retail items, from March 1998 to April 2001
- Lastminute.com – IPO in the UK coincided with the bursting of the bubble
- The Learning Company, bought by Mattel in 1999 for $3.5 billion, sold for $27.3 million in 2000
- LycosMicroStrategy – Shares lost more than half their value on March 20, 2000, following their announcement of re-stated financials for the previous two years. A BusinessWeek editorial said at the time, “The company’s misfortune is a wake-up call to all dot-com investors. The message: It’s time, at last, to pay attention to the numbers”.
- Open.com – Was a big software security producer, reseller, and distributor; declared bankruptcy in 2001
- Pets.com – Former dot-com enterprise that sold pet supplies to retail customers before entering bankruptcy in 2000
- Pixelon – Internet streaming video company that hosted a $16 million launch party in 1999 hosting celebrities such as The Who and the Dixie Chicks. Failed less than a year later when it became apparent that its technologies were fraudulent or misrepresented
- Startups.com – “Ultimate dot-com startup” that went out of business in 2002
- Think Tools AG – One of the most extreme symptoms of the bubble in Europe: market valuation of CHF 2.5 billion in March 2000, no prospects of having a substantial product (investor deception), followed by a collapse
- Tiscali – Important Italian telecommunications company whose share price grew from €46 (IPO in November 1999) to €1,197 in four months. They fell to €40 afterwards in less than two months and have continued plummeting to well under 0.20 euro.
- VA Linux - A provider of built-to-order Intel systems based on Linux and other open source projects. They set the record for largest first-day IPO price gain; after the price was set at $30/share, it ended the first day of trading at $239.25/share, a 698% gain (9 December 1999). After that, its stock declined consistently. After several business transitions it became Geeknet. It provides the backdrop of the documentary Revolution OS.
- Webvan, Online grocer that operated on a “credit and delivery” system; the original company went bankrupt in 2001. It was later resurrected by Amazon.com
- WorldCom, a long-distance telephone and internet-services provider that became notorious for using fraudulent accounting practices to increase their stock price. The company filed for bankruptcy in 2002 and former CEO Bernard Ebbers was convicted of fraud and conspiracy.
- Xcelera.com (XLA) – Swedish investor in start-up technology firms that was one of the “greatest one-year rise of any exchange-listed stock in the history of Wall Street”
Acquisitions
Attached Files