Time to load up again on the nets. Today's Barron's reports:
August 9, 1999
Internet Implosion
By Alan Abelson
Dot.comical.
Which is why we're deep-down sorry to see the Internet hysteria peak. It has
been just such great fun. A real stitch!
The buzz-powered parabolic moves.
The fantasy projections.
The carney-barker analysts making their wild, improbable spiels with an eye
on snaring the next IPO.
The great weirdo, with-it, shocker names, conjuring up images of corporate
rock bands.
The hyperventilating claptrap about a new big-bang technology creating a new
ever-expanding economy, raising productivity to Himalayan heights, sparking
an Information Revolution that is alchemically transforming our humdrum
existences into a new Golden Age and, most rapturous of all, making come
true the consumer's eternal dream of buying anything and everything at a
whopping discount.
We're truly sad to have to say goodbye to all that, goodbye to all the hilarious
hokum and bunkum with which Wall Street freighted the Internet. And we
can't help but utter a modest moan of regret that we won't see its like soon or
maybe ever again.
Although it has been evident for months that the mania had reached fever
pitch and was breaking, we knew for sure last week that, except for the
keening and weeping and gnashing of teeth, it was over, finis.
When exactly did we know it?
It wasn't, as you might suspect, when the stocks went into free fall. And it
certainly wasn't when, after the sector was down 40%, the logorrheic
proprietor of an online financial rag turned bearish on Web shares (perhaps
not coincidentally, his own stock, off from over 71 to 18 and change, acts like
one sick kitty, so bedraggled it could barely participate in the group's
dead-cat bounce).
Nor was it the fact that not one, not two, not three, but count 'em, four
Internet IPOs wound up their first day of trading below the offering price.
Before last week, by contrast, in the vast gurgling, bubbling flow of 'Net
offerings, a mere three had suffered that ignominy.
And it wasn't the revelation that Goldman Sachs' proposed Internet mutual
fund will studiously avoid buying the Internet stocks underwritten by Goldman
Sachs. Although that did affirm our esteem for the distinguished firm's good
sense and sound judgment.
No, what cemented our conviction that we'd seen the high in the insanity index
was a piece in Tuesday's Journal describing the virtually indescribable: online
companies (or somethings) going public by giving their stock away. Right, for
free!
The story cites, by way of example, Web Equity Capital, a shell empty of just
about everything but a prayerful promoter, which plans to issue 10 billion
shares of free stock. The notion, seemingly, is to stir interest in the wannabe
company's Website so that someday it'll be able to sell some stock for ...
money.
Unlike other recent Internet giveaways, this one may pass muster at the SEC
because it has filed a registration statement, and it seems to contain accurate
information -- namely, that the company's pretty much a laughable excuse for
a company, and the stock is worthless and may retain that status in perpetuity.
But that Internet outfits are giving away free stock persuaded us beyond
doubt that not only will value out, but online IPOs had finally reached the
point of reductio ad absurdum. It was great while it lasted, but the game most
definitely is over.
None of this is to be construed as declaring, asserting, hinting or otherwise
implying that the Internet itself won't continue to grow in ways too various to
conceive and at breathtaking speed. While we consider something between
ludicrous and loony the more extravagant claims for its powers or its impact
(it won't cure the common cold and it won't make dummies smart), there's no
argument it'll influence in a big, big way consumers and the people who sell to
them.
In a nutshell, the Internet, by displaying prices of everything under the sun
simultaneously, is proving an unprecedented boon to shoppers and an
unprecedented bane to the profit margins of the vendors who supply them.
And both boon and bane will grow exponentially as the masses increasingly
go online.
Put another way, the Internet is shaping
up as the great and enduring instrument
of profitless prosperity for the diverse
commercial hordes feverishly gathering
to exploit it. It has introduced a new
dimension to competition that promises
or threatens, depending on your
preference, to tilt the transactional
equation heavily in favor of the buyer.
That has all kinds of implications for
both the economy and the proliferating
population of online companies. Consumers are also -- or perhaps firstly --
employees, small-business folks, teachers, preachers, etc., and what affects
the economy and their livelihoods most evidently affects them. As for the
swelling ranks of Internet enterprises, profits will continue to be conspicuous
by their absence.
In fact, we can't see anybody making real money out of the Internet -- except
by selling stock. And off the most recent evidence, that's going to be tougher
and tougher to do. The best of times for online IPOs has come and gone,
alas. And those phantasmagoric mergers between vaporish entities with
multibillion-dollar market caps will shrink drastically in number, since the deals
were invariably for stock, a currency undergoing alarming devaluation with
each passing day.
Hail and farewell then. Farewell to the Internet explosion. We'll miss it. Hail to
the Internet implosion. It, too, promises to have its moments. |
