Netscape IPO - the spark?

 

Following on from last week I said I was going to discuss two events, first I will talk about Netscape. In 1993, a 21-year-old computer-science major Marc Adreesan created a browser called Mosaic, which made browsing the web more accessible as it was easy to use. As a result of the internet being easier to use the number of people using it grew rapidly from just over 14 million in 1993 to 281 million in 1999.

Number of Internet Users - Internet Live Stats

Andreeson moved to Silicon Valley, under the new name Netscape with funding from James Clark, quickly becoming the most popular browser in the world by end of 1994. In June 1995, the duo made the decision to take Netscape public despite never returning a profit. Netscape was offered at $28 per share, in August and by year end it had reached $174. This IPO provided the template for other ‘younger’ companies backed by venture capitalists.  The issuing of technology IPO’s peaked in 1999 when 370 were issued with market value being $450 billion. This market collapsed soon after and IPOs issued in 2001 were valued at $27 billion. Along with the IPO boom the S&P500 Index rose pretty much consistently by 353% to its peak in March 2000.

S&P500 Index – Yahoo Finance

If we reverse a couple of years, to late 1996 when Greenspan made his speech in response to Robert Shiller advising a correction was due. He questioned the point at which asset prices could be a result of irrational exuberance rather than changes in intrinsic value. This was a little premature as the market kept growing to its peak in March 2000, with no correction occurring. 

The Netscape IPO can be seen as the spark for the bubble as it set the foundations for other computer-based companies to issuing IPOs at an early stage. So now that we have a spark, I will try and link to the sides of the Bubble Triangle