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."

Like this article? Get this issue right now on iPad, Nook or Kindle Fire.

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

Loading the player ...

Tim Ferriss on Mastering Any Skill

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories