Damn Dotcoms!

Mistaken Market Valuations

If so, it's one crowded river. After all, who can blame investors for falling for the new kid in school?

Take the application-hosting industry-the companies that build and maintain the sites that are used by e-commerce companies. The market valuations for some of these companies are so out of whack they make no sense to the untrained eye.

Consider Irving, Texas-based Data Return Corp., a Web hosting company that counts First USA, RadioShack and Pier 1 Imports among its customers, as well as Compaq Computer and Microsoft among its financial backers. In October 1999, the company's stock climbed a measly (for Web IPOs) 26 percent in its IPO. But, based on traditional valuations, the company still boasted a market capitalization disproportionate to its size. The company lost $1.3 million on sales of $1.9 million in its fiscal year ending March 31, 1999. But with the IPO, it was worth $564.9 million at the end of its first day of trading.

Its founders-Sunny C. Vanderbeck, 27, and Michelle R. Chambers, 32-basically had a license to print money, earning a combined $241 million that day in paper profits. Not bad for a company that has lost over $1 million this past year alone.

"It's hard not be jealous, but I wish [the dotcoms] well," offers Marvin Eisenbath, 48, owner of Fair Market Inc., a Wentzville, Missouri-based food distributor with $24.5 million in 1999 sales. "The only problem I have with the Web IPOs is that I'm not getting any of the action. Otherwise, what are you going to do? I run a good, dependable business that should earn $30 million in 2000-and it's not overvalued. If you ask me, the media worries about things too much."

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This article was originally published in the August 2000 print edition of Entrepreneur with the headline: Damn Dotcoms!.

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