>BOB METCALFE: "From the Ether" InfoWorld.com November 9, 1999
>DAY OF RECKONING ARRIVES. THE INTERNET
>STOCK BUBBLE BURST TODAY, DIDN'T IT?
>TODAY, Nov. 8, 1999, the Internet stock bubble burst, or so I've
>been predicting since April.
>I'd been warning about Internet stocks since March 15. But it
>was on April 15, during a National Venture Capital Association
>panel at Boston's Ritz-Carlton, and in this column on April 26,
>that I first announced today's stock burst.
>Now, follow my verb tenses carefully. I'm writing this column a
>week ago, on Oct. 31, just before attending Weird Al Yankovic's
>Halloween Concert in Portland, Maine. So I can't say how
>exactly right I am today. All I have are stock data from the
>market close on Oct. 29.
>Oct. 29? Yes, we just passed the 70th anniversary of The Great
>Stock Market Crash of Oct. 29, 1929. That Black Thursday ended
>The Roaring Twenties and began The Great Depression. On that
>one day, the Dow Jones industrial average dropped by 13 percent.
>Funny, but The Wall Street Journal just last week updated the
>Dow Industrials by replacing Chevron and Sears with Intel and
>Microsoft. Intel and Microsoft are not Internet stocks, but
>they've arrived among the Industrials just in time to drag the
>But forget the Dow; let's use the Internet Index at
>http://www.thestreet.com . Its 30 Internet leaders rocketed
>during early 1999, from December's low of 302 to a high of 824
>in, yes, April. After I predicted today's burst, the index
>turned south and, by August, was back down into the 400s.
>Many said then that the Internet bubble had burst. But not me.
>On Aug. 30, I reiterated my Nov. 8 prediction.
>In the September issue of Red Herring magazine
>( http://www.redherring.com ), Editor Anthony B. Perkins looked
>at the 133 initial public offerings (IPOs) of Internet stocks
>since Netscape in 1995. Their combined market capitalization
>(share price times number of shares outstanding) was then $410
>billion, which is impressive. Annual revenues were not so
>impressive at $15.2 billion. Even less impressive were the
>profits of these companies, at a loss of $3 billion.
>Perkins calculated that, to be worth their August prices,
>assuming profits of 5 percent to 15 percent and
>price-to-earnings ratios at 40, the Internet IPOs would have to
>grow their revenues by 80 percent per year for the next five
>Consider that Microsoft grew 53 percent its first five public
>years and Dell grew 66 percent. Even assuming Dell's growth,
>the size of the Internet bubble came out as an excess market
>cap of $130 billion, or 33 percent.
>So, in September, Perkins said sell, whereupon TheStreet.com's
>index turned up, from August's 400s to 750 on Oct. 29.
>Akamai was yet another sign. This fine Internet company was
>founded 14 months ago by people whom I know from around the MIT
>Laboratory for Computer Science. Akamai generated $1.3 million
>in revenue for the nine months ending on Sept. 30.
>Morgan Stanley priced Akamai's IPO at $26 per share. On the big
>day, Oct. 29, the 250-employee company's new stock closed at
>$145 per share, giving it a market cap of around $13 billion,
>less than Chevron but more than Sears.
>The Weird Als who buy Internet IPOs saw interest rates not going
>up much and must have thought, hey, Akamai is worth five times
>more than what Morgan Stanley just estimated. This makes me
>think that investing in Internet stocks is beyond gambling;
>it's more like rooting for sports teams. So we should ask,
>"How do you like them Akamais?"
>Now, hot off the presses, sight unseen, I recommend The Internet
>Bubble: Inside the Overvalued World of High-Tech Stocks -- and
>What You Need to Know to Avoid the Coming Shakeout, by Anthony
>B. Perkins and Michael C. Perkins. They warn investors to get
>out while the getting is good, which, according to my
>prediction, was before today, Nov. 8, 1999.
>Technology pundit Bob Metcalfe's job hangs in the balance.
>If the Internet stock bubble doesn't quite burst today,
>please send outpourings of heartfelt support to his editors