Will the bubble burst in 2000?

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Will the bubble burst in 2000?

When a company does an IPO, it raises a certain amount of cash, usually in the tens or hundreds of millions. No matter how much the stock price rises, this pile of cash doesn't increase, and the red ink of salaries and office space and advertising and other expenses immediately starts nibbling away at it (the 'burn rate').

So long as the company runs in the red, as almost all Net companies do (yes?), there's no new cash flowing in, right? (Can they dilute the stock with a second offering? Has anyone done that successfully yet?)

Can analysts predict when the bottom will be scraped?

Do the media even report the bankruptcies, or is it good-news-only?

-- Jorn (jorn@mcs.com), January 05, 2000


Companies do secondary offerings all the time. In this weird environment, being profitable is a strike against you. You're not Getting It, the investors say. Now is land-grab time. If you're pausing to earn a profit, you're not playing the game they want to play.

-- Dave Winer (dave@userland.com), January 05, 2000.

Companies can also use stock or stock options in lieu of cash for goods and services. Of course, if (when) the stock drops companies that are also counting on this to fuel their engines can crash and burn.

-- Joel Brand (joelbrand@home.com), January 05, 2000.

Don't forget bank loans. A "successful" red-ink company (e.g. Amazon) can qualify for loans from interested banks (which are themselves making an investment after a fashion, at considerably lower risk).

Then you have the tendency to make alliances. Not only are these often sub rosa mergers (stock swaps), the red-ink company can get a monetary investment as a loan from the moneybags company. This is what Apple and Microsoft did. This is a not-often-discussed influence, less anyway than "competition", on the tendency toward alliances that we've seen.

-- Dan Hartung (dhartung@mcs.net), January 05, 2000.

That was a secondary offering.

-- Apple invests $100 million in Earthlink (dave@userland.com), January 06, 2000.

All it will take in the "new economy" is one economic downturn and the internet sector of the stock market will come crashing to the ground. Given the irrational euphoria of investors, when this will happen is anyone's guess.

The problem with e-commerce is everyone is jumping on the bandwagon because they think they will make a killing. That will be its undoing. The consumer pie is being cut into increasingly smaller pieces. I mean, how many books can people buy? Pet supplies? Toys? Even in the good ol' USA, there is only so much money to go around. Runaway consumerism can only go so far. . . and very few companies have shown any ability to turn real profits. Most of the e-commerce / internet companies will either go out of buisness or merge into a few large corporations.

I saw an interesting graph in Time magazine a couple of weeks ago plotting percentage of households invested in the market. There was a similar peak about 35 years ago. Then guess what happened? The bubble burst and people pulled their money out of the stock market. I wouldn't be surprised if it happened again.

The internet boom is very much like the gold rush. A timy number of people will become filthy rich. The rest will lose their shirts. No, the media doesn't tell us about the failures and Silicon Valley is so full of hot gas it is a wonder it doesn't float off into space!

I hope the bubble bursts sooner than later. If I see one more ad for a e-commerce / dot.com company, my head is going to explode, like in that movie "Scanners"!

-- Oxnard (astroman@hickory.net), January 06, 2000.

What makes you think there is a Bubble? I would agree that some stocks are way over valued, but the fact remains that the stock market has historically given a very good return. Recent reports continue to show the rich getting richer while the poor gaining very little. More and more people are able to see this constant evidence and make the rational decision to get a piece of this growth. The Motley Fool had an interesting piece a while back at http://www.fool.com/specials/1999/sp990922abelson.htm on an "Expert" that is constantly predicting that "the Bubble" will pop while the investing public ignores him and continues to make nice gains. I don't have a lot of money in the stock market, but I have already withdrawn more than I ever invested, so I'm not worried even if chicken little is right.

-- Randy Williamson (rcwilli@iname.com), January 27, 2000.

it's not a bubble, it's a bubblebath. only that there are no plastic ducks in it but a few fat spiders and many little flies. get the picture here: http://www.orgnet.com/netindustry.html

wonder what results will a more effective continuation of the denial of service attacks have on the internet stocks.

some people say the only company which made real money during the gold rush was the one making blue denim trousers for the mining workers.

so who are the diggers this time?

greetings from berlin

-- Pit (pit@mikro.org), February 10, 2000.

Perhaps it's time to rename this thread: "Is the bubble bursting in 2000?"

-- Seth Gordon (sgordon@kenan.com), April 13, 2000.

A recent issue of the Economist sounds their cheeriest note so far on the New Economy. There IS something there, they are now willing to admit. But read closely--they damn with faint praise. The best we can expect of the New Economy, they say, is that it optimizes the Old Economy--to the tune of maybe 5-15%. In some sense, there is no New Economy, just electronic fuel injection for the Old.

The question now is: how much overinvestment has there been in getting that 5-15% efficiency gain? (I should say "net over- investment"--e.g., there may be a net overinvestment considering B2C portfolio inflation even as B2B is just gaining momentum. I don't watch these things closely enough to guess.) How many carburetor replacements have been paid for beyond what's needed?

In Schumpeter's Capitalism, Socialism and Democracy, the author casts doubt on the Marxian dogma of declining investment opportunity. If, however, you look at Schumpeter's time (the first half of the 20th century), most technologically-ignited "creative destruction" was happening as a result of some dozen or so innovations that all emerged in the latter half of the 1800s. The Internet is, in a way, the final flowering of one of these innovations: telegraphy. Is it really going to change the world as much as telegraphy did?

For all the hype about the transformative effect of the Web, does anyone really see so much of a difference when they walk out the door, apart from URLs being mentioned ubiquitously? The cityscapes we see flow chiefly from 19th century innovations that have largely peaked in their transformative effect on modern life. Poured concrete, the telephone, the car--these were huge in their impact. The Net alone just doesn't justify all this money being thrown around, by comparison.

-- Michael Turner (turner@idiom.com), April 16, 2000.

i think the internet company that WONT go out of buisness cause it sees that urban culutre and music and its people is a very intriguing and intresting thing is.....


tell me what YOU think....

-- ricky qwest (getatus@mynddezign.com), November 30, 2000.

I think it's safe to say that the bubble (or most of it) burst in 2000. There's been no shortage of dot-com flameouts, and media coverage of the carnage.

-- Andrew Baio (robotwisdom@waxy.org), December 27, 2000.

Scroll back up this file to Astroman's post . Note date .

-- ojsbuddy russ (carcomp@qwest.net), January 09, 2001.

I know, I was reflecting back on the question that Jorn had posed a year before.

-- Andrew Baio (robotwisdom@waxy.org), March 30, 2002.

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