The Dot.Com Bubble Phenomenon: The rise and fall of the first e-stock empire

The group struggled in choosing riskier stocks because the idea of a risk seemed unattractive. Given this fact, the group immediately looked to the technology industry. In technology there is a constant race to create something new, new innovations, to better the products of competitors. As a result of this, stocks may fluctuate and favors of consumers may shift. One of our first selections was Amazon.com. Amazon is a cloud computing and electronic commerce company that was founded in 1994. As a result of the dramatic increase in popularity of Amazon, from 1.5 million active customer accounts to 305 million in 2015, investing in the stock appeared to be a rational and smart choice, resulting in the groups buying of 10 shares. The company as a whole

Such a bubble is, however, unsustainable. It will burst when the rosy expectations about future profits underlying those sky-high stock-market valuations turn out to have been unrealistic. As market sentiments shift and disappointed investors try to cash in their capital gains, selling waves ensue to push stock prices rapidly lower. Pressured by high levels of indebtedness in the face of declining asset values and mounting capital losses, investors rush to liquidate their

During the 1990s, as the Internet became available to the public and usage of it was on the rise, new start-up companies (start-ups) within the technology industry emerged. The Internet and technological advancements at the time enabled these companies to rapidly spread the word about their business; people were excited. The revolutionizing start-ups, known as “Dotcom companies,” (Dotcoms) embraced the Internet as key components of their business (“Dotcom”) and experienced spectacular initial public offerings (IPOs) and rapid increases in stock prices. This eventually led to a bubble; a bubble that burst in the early 2000s. Economics scholars Stephen G. Cecchetti and Kermit L. Schoenholtz explain that the Nasdaq Composite Index (Nasdaq), a stock-market index that is “composed of numerous small start-ups as well as large information technology (IT) firms, doubled in value from September 1999 to March 2000, then fell by 70 percent over the next year” (209). Along with the bursting bubble came financial distress that spread across the entire economy. Because Dotcoms were prominent in the bubble, the bubble has later been called “the Dotcom Bubble.” To fully understand the Dotcom Bubble, however, one must understand how bubbles are created,

"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" - Andrew Beattie.

It is believed that it will be very difficult for many investors to come to terms, and that returns will be quite modest into the foreseeable future in stocks. Why? Because according to the Wall Street Journal, more than half of all stock investors began investing during the 1990s, a time of unprecedented stock market strength. From 1995 through 1999, the Dow industrials averaged a gain of 24.7% a year and the NASDAQ composite averaged a 41.9% annual gain. Most investors have wrongly come to view such enormous gains as normal. The indexes have never before been able to sustain gains like that and, we doubt, they ever will in most of our lifetimes. Many would argue that recent dramatic downfalls in markets are due to events of 9/11.

With the Internet boom, the stock market was not only brought out into the public spotlight, but it was also brought much closer to the

Yahoo!, short for “Yet Another Hierarchical Officious Oracle”, has been in existence since the 1990’s and was one of the pioneers when the internet was developed with an approximate worth over $100 billion. It is known for being a search engine and its’ related services, including Yahoo! Mail, news, online maps, messenger, and fantasy sports. Slowly in the 2000’s, Yahoo! started to decline in sales, popularity, and consumers’ interest. On February of 2008, Microsoft offered close to $45 billion for Yahoo!. Three months later, Microsoft offered an additional $5 billion, but Yahoo! declined, stating that

deed, during the dot.com boom and bust of 1998-2001, many new companies with zero or negative

Netscape had been injected with various forms of investment capital, which included private equity investors. Continuing the same method to fund capital will further dilute Netscape 's ownership. Although, Netscape had a net loss of over $4 million on total assets over $42 million, and had never declared a profit in its short operating history, there must certainly be characterized as a risky IPO. However, based on the research of Wall Street and the positive results of Netscape 's road show, Netscape 's underwriters had the confidence that the market demands would be enormously high, and would continual to grow. According to all of the factors we have mentioned above, by balancing the intense competitions, the business risks, the high market demand, and the costs involved, we feel confident that Netscape would gain more

Since the late 1980’s the United States has observed several housing market bubbles and subsequent collapses (Calabria 2011, p. 552). Also, the country has also observed a profound increase in the trading of technologies stock (Sabherwal, Sarkar, and Zhang, 2011, p. 1210). In addition, the development of day-trading has taken control of nearly half of the stock trading industry (Chou, Wang, and Wang, 2014, p. 403). As a result, the traditional methods of company-share value evaluation no longer provide an accurate estimate of company value (Rosenblatt and Gawronski, 2004, p. 118). The introduction of twenty-first century technologies and stock trading opportunities have created an increasingly volatile stock market due to the usage of the internet for day-trading.

Today’s internet offers a virtual world of opportunity and while venture capitalists are more prudent about offering funding for dotcom businesses, driven entrepreneurs with good ideas are still devising ways to build solid businesses that harness the power of the internet. Amazon.com is one such e-business. It reaches millions of people worldwide and by utilizing smart business practices; Amazon.com staked its claim to a piece of cyberspace and became a billion-dollar business. Its success can be attributed to being an e-business that is innovative, smart, and quick to react to the changing consumer interests.

C. Kindleberger (1978) first defined “bubbles” as a continuously increasing process of assets’ price. This phenomenon

However, these theories only apply to assets with infinite lives (land and shares), as investors know that assets with finite terms will be redeemed for a specified value at maturity and this limits their secondary market price. According to Froot and Obstfeld, bubbles result from investors incorrectly estimating fundamentals. For example, shareholders may be unable to forecast industry changes that affect future profitability and are forced to condition expectations of future cash-flows on current payments. This ‘intrinsic rational bubble’ theory explains several empirical observations, including why share prices over-react to dividend changes.

Due to the potential of growth of this Industry within the nation many businesses and consumers promptly adopted the Internet. An increase in income meant that the demand for online goods rapidly increased, as consumers were able to spend more. These demand conditions allowed online multinational companies such as Google to innovate and thrive in the U.S. market due to the rich environment.

I compile, through various mediums, information regarding initial public offerings, or IPO’s. The report includes areas such as defining an IPO, the performance of IPO’s, the current market for IPO’s, and the process of buying an IPO. Therefore, the feasibility report is directed at the retail or non-professional investor who may be engaged in purchasing IPO’s. I look to determine if the underlying facts create certainty that these instruments are profitable currently and in the long run. It appears through study that investors have increased their consumption of initial public offerings since the 2007-2008 financial crisis. Many investors believe purchasing IPO’s can create quick realized gains. However, it appears that the performance of these issues has lagged the broader market, which in my opinion should steal zeal from these risky investments. The figures throughout this report should indicate and reaffirm that not all IPOs, whether popular or unpopular, will benefit the professional or non-professional investor. It must be noted that not everything is the same in financial markets and results may vary significantly from this report in a single incident or sample study.