Meanwhile, all the traditional metrics were being downplayed as no longer being relevant or important.
If we need any proof of this occurring then just look at what happened when analysts started asking serious questions in his conference call. Tesla earnings call:
The rest of the call consisted of that fanboy asking questions that were basically the equivalent of “wow, tesla is the best company ever.” with no real substance in terms of analyzing the financials and future earning potential of the company.
On March 20, 2000, Barron’s featured a cover article titled “Burning Up; Warning: Internet companies are running out of cash — fast”, which predicted the imminent bankruptcy of many internet companies.
When will the Internet Bubble burst? For scores of ‘Net upstarts, that unpleasant popping sound is likely to be heard before the end of this year. Starved for cash, many of these companies will try to raise fresh funds by issuing more stock or bonds. But a lot of them won’t succeed. As a result, they will be forced to sell out to stronger rivals or go out of business altogether. Already, many cash-strapped Internet firms are scrambling to find financing.
An exclusive study conducted for Barron’s by the Internet stock evaluation firm Pegasus Research International indicates that at least 51 ‘Net firms will burn through their cash within the next 12 months. This amounts to a quarter of the 207 companies included in our study. Among the outfits likely to run out of funds soon are CDNow , Secure Computing , drkoop.com , Medscape , Infonautics , Intraware and Peapod . (For a full list, see Find Your ‘Net Stock .)
To assess the Internet sector’s financial position, Pegasus assumed that the firms in the study would continue booking revenues and expenses at the same rate they did in last year’s fourth quarter. While this method cannot predict the future precisely, it helps answer a question that has been nagging many stock-market analysts: When will the crowded Internet industry begin to be winnowed?
The ramifications are far-reaching. To begin with, America’s 371 publicly traded Internet companies have grown to the point that they are collectively valued at $1.3 trillion, which amounts to about 8% of the entire U.S. stock market. Any financial problems at these Internet firms would affect the myriad companies that supply them with equipment, including such giants as Cisco Systems and Intel . Another consideration is that a collapse in highflying Internet stocks could have a depressing effect on the overall market and on consumer confidence, too. This, in turn, could make Americans feel less wealthy and cause them to spend less money on everything from cars to clothing to houses.
It’s no secret that most Internet companies continue to be money-burners. Of the companies in the Pegasus survey, 74% had negative cash flows. For many, there seems to be little realistic hope of profits in the near term. And it’s not just the small fry who are running out of cash. Perhaps one of the best-known companies on our list, Amazon.com, showed up with only 10 months’ worth of cash left in the till.
Pegasus was working with the latest public financial data, from December 31, so the table doesn’t reflect the fact that Amazon early this year managed to raise $690 million by issuing convertible bonds. But that money will last the firm only 21 months. Moreover, raising fresh funds will be more difficult if Amazon’s operating losses continue to mount and its stock price continues to flag.
“What’s critical is the stock price,” says Scott Sipprelle, co-founder of Midtown Research in New York. “It’s only when the stock price comes unglued that the burn rate means anything.”
Several signs suggest that the era of “unglued” stock prices is fast approaching. Amazon.com, for example, is trading at about 65, down from its all-time high of $113. Then there’s Internet Capital Group , trading at a recent 117, down from a high of 212. Many other net fledglings are in far worse shape. ELoan’s shares have plummeted to about 10, from a high of 74.
Around the turn of the millennium, spending on technology was volatile as companies prepared for the Year 2000 problem, which, when the clocks changed to the year 2000, actually had minimal impact.
In February 2000, with the Year 2000 problem no longer a worry, Alan Greenspan announced plans to aggressively raise interest rates, which led to significant stock market volatility as analysts disagreed as to whether or not 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 15, 2000, Yahoo! and eBay ended merger talks and the Nasdaq fell 2.6% but the S&P 500 Index rose 2.4% as investors shifted from strong performing technology stocks to poor performing established stocks.
On March 20, 2000, Barron’s featured a cover article titled “Burning Up; Warning: Internet companies are running out of cash — fast”, which predicted the imminent bankruptcy of many internet companies. This led many people to rethink their investments. That same day, Microstrategy announced a revenue restatement due to aggressive accounting practices. Its stock price, which had 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 inverted yield curve, although stocks rallied temporarily.
On April 3, 2000, judge Thomas Penfield Jackson issued his conclusions of law in the case of United States v. Microsoft Corp. (2001) and ruled that Microsoft was guilty of monopolization and tying in violation of the Sherman Antitrust Act. This led to a one-day 15% decline in the value of shares in Microsoft and a 350-point, or 8%, drop in the value of the Nasdaq. Many people saw the legal actions as bad for technology in general. That same day, Bloomberg published a widely-read article that stated: “It’s time, at last, to pay attention to the numbers”.
On Friday, April 14, 2000, the Nasdaq Composite index fell 9%, ending a week in which it fell 25%. Investors were forced to sell stocks ahead of Tax Day, the due date to pay taxes on gains realized in the previous year.
By June 2000, dot-com companies were forced to rethink their advertising campaigns.
On November 7, 2000, Pets.com, a much hyped company that had backing from Amazon.com, went out of business only 9 months after completing its IPO. At that time, most internet stocks had declined in value by 75% from their highs, wiping out $1.755 trillion in value.
Several accounting scandals and the resulting bankruptcies, 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.
By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since the peak. At its trough on October 9, 2002, the NASDAQ-100 had dropped to 1,114, down 78% from its peak.