Dot.

Com Crisis

Internet Banking and EPS Assignment 1 Dot. Com Crisis Submitted to: Mr. Ather Akhlaq Submitted by: Syed Nabeel Hussain Id: 9459
Refers to the late 1990s in the coursework of which limitless Web companies were riding a gigantic wave of enthusiasm that pushed their stock valuations in to the stratosphere although they never made a penny. Billions in venture capital got to entrepreneurs with little or no experience to fund ideas that were ludicrous. It was a crazy time, and people were excited. With all of the nonsense, plenty of dotcoms did survive, and limitless ideas and techniques were developed that continue today. Compared to other industries, must keep in mind that the Web is still in its infancy In less than decades time, the Web has changed our lives immeasurably. Among altering very every other aspect of our lives, from shopping, to communication, to receiving news, the Web has affected the way business has evolved. Lots of established businesses & start-ups have made millions off of the Web, & lots of more hope to do the same. However, entrepreneurs excessively optimistic expectations of the potential of the Web created the infamous dot-com bubble (often known as the Internet bubble) of the latter half of the 1990s. Another bubble may be on the way if they are not cautious. During the late 20th century, the Web created a euphoric attitude toward business and inspired plenty of hopes for the future of online commerce. For this reason, plenty of Web companies (known as dotcoms) were launched, and investors assumed that a company that operated online was going to be worth millions. As Kalen Smith stated, But, obviously, many dot-coms were not rip-roaring successes, and most that were successful were highly overvalued. As a result, many of these companies crashed, leaving investors with significant losses. In fact, the collapse of these Internet stocks precipitated the 2001 stock market crash even more so than the September 11, 2001 terrorist attacks. Consequently, the market crash cost investors a whopping $5 trillion. On the whole, in the mid- to late 90s, society expectations of what the Web could offer were unrealistic. From individual dreamers to major corporations, Web entrepreneurs were enamored with dreams of becoming dot-com millionaires (or billionaires). By and giant, these entrepreneurs were inspired by companies like Amazon, eBay, and Kozmo. Of work, for every company that grew to be a multi-million dollar business, hundreds of others failed. Many investors foolishly ignored the fundamental rules of investing in the stock market , such as analyzing P/E ratios, studying market trends, and reviewing business plans. Instead, investors and entrepreneurs became preoccupied with new ideas that were not yet proven to have market potential. Furthermore, they ignored the blatant signs that the bubble was about to burst, as indicated by Larry Elliott , economics editor of The Guardian. Institute of Business Management Page 1

Dot. Com Crisis

Factors That Led to the Dot-Com Bubble Burst: The Use of Metrics That Ignored Money Flow. Lots of analysts focused on aspects of individual businesses that had nothing to do with how they generated revenue or their money flow. For example, theory is that the Net bubble burst due to a preoccupation with the network theory, which said the worth of a network increased exponentially as the series of nodes (computers hosting the network) increased. Although this idea made sense, it neglected of the most important aspects of valuing the network: the ability of the company to make use of the network to generate money & produce profits for investors. Significantly Overvalued Stocks. In addition to focusing on unnecessary metrics, analysts used high multipliers in their models & formulas for valuing Net companies, which resulted in unrealistic & excessively optimistic values. Although more conservative analysts disagreed, their recommendations were virtually drowned out by the overwhelming hype in the financial community around Net stocks.

New technology invariably creates a bubble. Although it is simple to get caught up in trends such as social media, walking a blog, & ecommerce, it is important to not be caught up in the hype when making any investment. In lieu, keep in mind past mistakes, & recognize that the potential to lose money by investing in a feasible bubble still exists. There is nothing wrong with investing in Web companies. But approach them the way you would any other potential investment with an eye on their balance sheet & profitability, than the surrounding buzz.

Institute of Business Management

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