Their investors included Benchmark Capital, Sequoia Capital, Softbank Capital, and Goldman Sachs. In under two years, the company raised nearly half a billion dollars with an initial public offering — and spent more than a billion dollars.
Did you think I was talking about Facebook or Yelp or Twitter? I was talking about Webvan.com. Between 1999 and 2001, the online grocer went from an analyst darling valued at more than $1 billion to bankruptcy, and saw its stock crash from an all-time high of $30 to just $6 per share. In 2008, CNET crowned Webvan.com as the largest dot-com flop in history, but I see it as the biggest flop in dot-com bomb 1.0, because I believe we are just now pricking at the bubble that will be dot-com bomb 2.0.
We’re seeing some of the very things that occurred leading up to the first Internet stock bubble, where so many investors listened to analysts with ulterior motives, buying into profitless companies with big growth and even bigger spending habits. Here are four signs that we’re headed for another Internet stock bubble bust.
1. RIDICULOUS EXECUTIVE COMPENSATION
LinkedIn, a social networking website for employment, has seen better days. Since its IPO in May 2011, the stock has gone from $45 to an all-time high of $253 per share, only to crash more than 30 percent since the beginning of 2014. Yet CEO Jeffrey Weiner took in nearly $180 million, including $169.8 million from stock options, $9.4 million from vested shares, and $49 million in compensation, adding up to one of corporate America’s largest CEO pay packages. That pales in comparison to the golden parachute given to Henrique de Castro, Yahoo’s chief operating officer. Yahoo CEO Marissa Mayer hired de Castro — a former Google colleague — in 2012 and dismissed him just 15 months later with a severance package worth nearly $58 million.
2. IPO FATIGUE
King Digital Entertainment, maker of the popular mobile game app Candy Crush Saga, was the most hotly anticipated IPO since Twitter, but it tanked, falling about 16 percent on its first day of trading. Chinese microblogging sensation Weibo scaled back its expected 20 million share offering and price of $19 to 16.8 million shares priced at $17, resulting in proceeds nearly $400 million lower than expected. Back in 2011, when IPOs were flying off the shelves, analysts and financial publications lauded online coupon site Groupon as “the fastest growing company in history,” and the IPO priced its shares accordingly, offering 35 million shares at $20, well above the expected 30 million shares at $16. But Groupon has tumbled 50 percent, from a 52-week high of $12 to around $6. Other high-tech momentum darlings have also retreated from their peaks to bear country.
3. NOSEBLEED VALUATIONS
Along with those hot IPOs and venture capital boons come absurd valuations, one of the hallmarks of dot-com bomb 1.0. In February of 2000, Pets.com raised $82.5 million in its IPO despite the fact that the year-old company lost $42.4 million on $5.2 million in sales during the previous quarter. In April of this year, home-sharing app and website Airbnb reportedly closed a $475 million round of financing that values the profitless company at around $10 billion, making it worth more than established hotel chains like Wyndham Worldwide or Hyatt. Ride-sharing service Uber is in talks for an additional round that will also value it at $10 billion. And Pinterest, a scrapbooking website, said it raised an additional $200 million, giving it a valuation of $5 billion.
4. WHAT’S APP
Jan. 10, 2000, was the day that many people remember as the real beginning of the end for dot-com boom 1.0. On that day, AOL announced it would buy media behemoth Time Warner in an all-stock deal worth $160 billion. The AOL-Time Warner merger imploded and, some 14 years later, is considered the biggest bust in merger history.
I believe the events of Feb. 19, 2014, will be seen as the beginning of the end of dot-com boom 2.0. That was the day Facebook’s dictatorial CEO Mark Zuckerberg plunked down $19 billion to buy a profitless texting application called What’sApp. The following month, Facebook’s stock slumped 12 percent, and even after a fairly good earnings report last month, the stock has continued to slide. Pundits saw the purchase as Zuckerberg’s desperate attempt to stay relevant, but investors should be more concerned with the ease with which Zuckerberg throws around Facebook stock, which is about as good as Monopoly money when you consider that it’s more expensive than 98 percent of those in the Standard & Poor’s 500 Index.
