dot-com bubble (also known as dot-com boom , dot-com crash , Y2K crash , < b> Y2K bubble , technology bubble, Internet bubble , dot-com collapse , and information technology bubble ) is a historic economic bubble and an excessive period of speculation that occurred sometime between 1997 and 2001, an extreme period of growth in Internet usage and adaptation.
The Nasdaq Composite stock market index, which includes many Internet-based companies, peaked on March 10, 2000 before falling. When the bubble burst, some companies, such as Pets.com and Webvan, failed completely and were closed. Others, such as Cisco, whose shares declined by 86%, and Qualcomm, lost most of their market capitalization but persisted, and some companies, such as eBay and Amazon.com, declined in value but recovered quickly.
Video Dot-com bubble
Approaching the bubble
In 1993, the release of the Mosaic web browser made access to the World Wide Web easier. Internet use is increasing as a result of the reduction of "digital divide" and progress in connectivity, Internet use, and computer education. Between 1990 and 1997, the percentage of households in the United States who own computers increased from 15% to 35% because computer ownership grew from luxury to necessity. It marks the Information Age, a shift to the economy based on information technology, and many new companies are established.
At the same time, low interest rates increase the availability of capital. The 1997 Taxpayers Aid Act, which lowers the profit tax on marginal capital in the United States, also makes people more willing to make more speculative investments. Alan Greenspan, former chair of the Federal Reserve, allegedly pushed investment in the stock market by putting a positive spin on stock valuations. The 1996 Telecommunications Law is expected to produce many new technologies and people want to profit.
Maps Dot-com bubble
Bubble
As a result of these factors, many investors are eager to invest, on any assessment, in the dot-com company, especially if it has one of the Internet-related prefixes or a ".com" suffix in its name. Business capital is easy to upgrade. Investment banks, which derive significant profits from an initial public offering (IPO), fuel speculation and encourage investment in technology. A combination of the rapid rise in stock prices in strong economic sectors and the belief that companies will turn future profits creates an environment where many investors are willing to ignore traditional metrics, such as price-earnings ratio, and basic belief in technology. progress, leading to the stock market bubble. Between 1995 and 2000, the Nasdaq Composite stock market index rose 400%. It reached the price-earnings ratio of 200, dwarfing the 80-share price-to-profit ratio for Japan's Nikkei 225 during the Japanese asset price bubble of 1991. In 1999, Qualcomm's shares gained as much as 2.619%, the other twelve-cap stocks rose more than 1,000%, and 7 additional large-cap stocks each rose more than 900% in value. Although the Nasdaq Composite rose 85.6% and the S & amp; P 500 rose 19.5% in 1999, more stocks dropped in value than rose in value as investors sold stocks in companies that grew slower to invest in internet stocks.
An unprecedented amount of personal investment occurred during the explosion and the stories of people who quit their jobs to engage in full day trading are common. The news media takes advantage of the public's desire to invest in the stock market; an article in The Wall Street Journal suggested that investors "rethink" the idea of ​​"strange" about profits, and CNBC reported on the stock market with the same level of tension as many networks provided for broadcasting sporting events.
At the height of the boom, it is possible for a dot-com company that promises to be a public company through an IPO and collect huge sums of money even if it never makes a profit - or, in some cases, realizing material revenues. People who receive employee stock options become instant paper millionaires when their company executes an IPO; However, most employees are prohibited from selling stock immediately due to lock-up period. The most successful entrepreneurs, such as Mark Cuban, sell their shares or hold a hedge to protect their profits.
Dot-com corporate spending trends
Most dot-com companies suffer net operating losses because they spend a lot of money on advertising and promotions to take advantage of network effects to build market share or share thoughts as quickly as possible, using the motto "big fast" and "get big or lost". These companies offer their services or products for free or at a discounted price in the hope that they can build enough brand awareness to charge a favorable rate for their services in the future. In January 2000, there were 16 dot-com ads during Super Bowl XXXIV, each costing $ 2 million for a 30-second spot.
The mentality of "growth is more than profit" and the unbeatable aura of "new economy" leads some companies to engage in expensive spending on elaborate business facilities and luxury vacations for employees. After the launch of a new product or website, the company will organize an expensive event called a dot com party.
Bubble in telecommunication
Providers of telecommunications equipment, convinced that the future economy will require broadband access everywhere, get into debt to improve their network with high-speed equipment and fiber optic cables. In many areas, such as Dulles Technology Corridor in Virginia, the government funds the technology infrastructure and creates lucrative business and tax laws to encourage companies to flourish. In Europe, mobile companies spend too many 3G licenses, which causes them to owe a lot. Investment in infrastructure is far out of proportion to cash flow. This is the main factor causing the telecommunication accident.
Explode bubbles
Around the turn of the millennium, spending on technology becomes unstable as the company prepares for the Year 2000 problem, which when the clock changes to 2000, actually has minimal impact.
On January 10, 2000, America Online announced a merger with Time Warner, the largest to date and a step questioned by many analysts.
In February 2000, with the Year 2000 problem no longer alarming, Alan Greenspan announced plans to raise interest rates aggressively, leading to significant stock market volatility as analysts disagreed over whether technology companies would be affected by higher borrowing costs.
On March 10, 2000, the NASDAQ Composite Stock Market index peaked at 5,048.62.
On March 13, 2000, news that Japan was once again entering a recession sparked global sales that impacted disproportionately on technology stocks.
On March 15, 2000, Yahoo! and eBay ended the merger talks and the Nasdaq fell 2.6% but the S & amp; P 500 rose 2.4% as investors shifted from strong-performing technology shares to poorly performing stocks.
On March 20, 2000, Barron featured a cover article entitled "Burning: Warning: Internet companies ran out of cash - fast", predicting the bankruptcy of many Internet companies that are about to ensue. This causes many people to rethink their investments. On the same day, Microstrategy announces reinstatement due to aggressive accounting practices. Its share price, which has risen from $ 7 per share to as high as $ 333 per share in a year, fell $ 120 per share, or 62%, in a day. The next day, the Federal Reserve raised interest rates, leading to an upside-down yield curve, although stocks rose temporarily.
On April 3, 2000, judge Thomas Penfield Jackson issued his legal conclusions in the case of the United States v. Microsoft Corp. (2001) and decided that Microsoft is guilty of a monopoly and binding that violates the Sherman Antitrust Act. This led to a 15% drop in the value of Microsoft shares and 350 points, or 8%, Nasdaq declining. Many people see legal action is bad for technology in general. On the same day, Bloomberg published a widely read article stating: "It's time, finally, to pay attention to the numbers".
On Friday, April 14, 2000, the Nasdaq Composite index fell 9%, ending the week in which it fell 25%. Investors are forced to sell stocks ahead of the Tax Day, the due date to pay taxes on gains realized in the previous year.
In June 2000, the dot-com company was forced to rethink their advertising campaigns.
On November 7, 2000, Pets.com, a very reputable company that received support from Amazon.com, dropped out of business just 9 months after completing its IPO. At the time, most Internet stocks had declined by 75% from their highs, erasing $ 1.755 trillion.
In January 2001, only 3 dot-com companies bought advertising spots during Super Bowl XXXV: E-Trade, Monster.com, and Yahoo! HotJobs.
The September 11 attacks accelerated the stock market downturn.
Some of the resulting accounting and bankruptcy scandals, including the Enron scandal in October 2001, the Worldcom scandal in June 2002, and the Adelphia Communications Corporation scandal in July 2002 further eroded investor confidence.
At the end of the stock market decline in 2002, the stock has lost $ 5 trillion in market capitalization since its peak. On a trough on October 9, 2002, NASDAQ-100 fell to 1,114, down 78% from its peak.
Aftermath
Once venture capital is no longer available, the operational mentality of executives and investors is completely changed. The dot-com period of time is measured by its burning rate, the rate at which it exhausts its existing capital. Many dot-com companies run out of capital and experience liquidation. Supporting industries, such as advertising and shipping, reduce their operations as demand for services declines. However, many companies are able to bear the accident; 48% of dot-com companies survived until 2004, albeit with lower valuations.
Some companies and their executives are accused or punished for fraud for misusing shareholder money, and the US Securities and Exchange Commission imposes substantial fines on investment companies including Citigroup and Merrill Lynch for misleading investors.
After suffering losses, retail investors are shifting their investment portfolios to a more cautious position.
Job market and abundant office equipment
Layoffs from programmers produce a general satiety in the job market. University enrollment for computer-related titles declined significantly. Anecdotes of unemployed programmers who return to school to become accountants or lawyers are common.
Startups that fail to liquidate all their computer equipment and office equipment such as the Herman Miller Aeron chair.
Legacy
As growth in the information technology sector stabilizes, consolidated companies, some, such as Amazon.com, eBay, and Google gain market share and dominate their respective fields. The information technology industry is becoming more similar to other traditional economic sectors, albeit with faster growth rates and higher valuations than other sectors. Now there are many information technology companies that are ranked at the top of Fortune 500.
In a 2015 book, venture capitalist Fred Wilson, who funded the dot-com company and lost 90% of his net worth when the bubble exploded, saying about the dot-com bubble:
Source of the article : Wikipedia
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