Bursting the Bubble

 

During Superbowl XXXIV, 17 dotcom companies spent $44 million on ad spots during the big game, a year later at XXXV this number was 3. Why was this? The Bubble burst.

On March 10, the combined value of stocks on NASDAQ was $6.71 trillion. A month later April 6, this was $5.78 trillion. This showed a decrease of nearly a trillion dollars in stock value. Tom Wyman, a JP Morgan analyst, said that some of these companies were losing between $10-30 million per quarter, which wasn’t sustainable and would result in many companies folding. Between March 2000 and October 2002, NASDAQ fell by 78% and S&P500 fell by 49%.

Pets.com share price from IPO to collapse - Bloomberg

One of the biggest casualties was Pets.com, which collapsed 10 months after its IPO. One of the reasons for Pets.com failing was it tried to grow to quickly. The company worked through $147 million  trying to increase market share, but thought their revenue would grow quick enough to turn a profit, but it never did and after 9 months of losses it folded with share price $0.19.

I said in my first blog I would look at whether the bubble impacts our lives today and I think it has had an impact. Take Netflix, around the year 2000 Netflix abandoned plans for an IPO, as the Dot Com crash got in the way. Netflix changed their business plan, investing in their service before marketing and today Netflix is the most popular streaming service worldwide.

So the lasting impact of the bubble is that it has taught companies how not to start up and thankfully we haven’t seen a “Dot-Com Bubble 2.0”, but there are a lot of similarities between the years before the crash and today.