Easy .com, easy go

Did somebody get the licence plate of that stock market? The prognosticators are still tallying the results of the massive sell-off that hit technology stocks in the last few weeks. But if you're involved in the Internet, the pain is more than palpable, it's ubiquitous. It's an understatement to say that there is a change in sentiment.

Forget about Yahoo. All it did was report a record quarter and perfect execution of a difficult, massive business model - and the stock fell 21 per cent the next day in response. But imagine the pain over at Ventro, which traded at $US243.50 in February. It's now below $US7. CBS MarketWatch.com has fallen from $US44.25 to about a tenth of that price. You could have paid $US89.38 for Amazon.com in January, or you could've paid $US24.63 for it last week. But none of these companies has slipped up - they've all delivered what they promised.

Clearly, Wall Street has changed its mind about the Internet.

You probably could have seen this one coming. That's because the money that's fuelling the Internet has been drying up all year.

Two sources of money were famously feeding the Internet: venture capital and initial public offerings. Both have slowed over the last year, and will dramatically slow now that the IPO market seems to be shutting down. "You can just see it in the IPO calendar," says David Readerman, senior Internet analyst with San Francisco-based Thomas Weisel Partners. "It used to be five IPOs a day. Now you see something like five in a week."

A recent research report by Readerman shows that the total slowdown has been remarkable. Figures from the third quarter aren't in yet, but the second quarter of 2000 saw total venture capital and IPO dollars down 22.7 per cent off their fourth-quarter 1999 peak.

Two types of investors benefited from the IPO, of course: the venture capitalists and the powerful mutual funds lucky enough to get IPO share allocations. But when every Internet offering stopped surging up on its first day of trading, the incentive to rush out and do an IPO evaporated. So too did these gains, which often found themselves reinvested into the market in new venture capital rounds.

"There are guys who have been making all kinds of money over the last three years who never had to know anything about valuations," says Carter Dunlap, head of Dunlap Equity Management, a hedge fund. "Now they're left shaking their heads saying, 'I just don't get it'. The problem is they never got it. They bought stocks and watched them go up."

If Net stocks clearly don't matter right now, will the go-go market come back?

Why would it? The scarcity of the first Net stocks, which ignited the mania, is long gone. Since then, the Internet stock market has been driven, to a large degree, by a pyramid-scheme-like mentality: I won't sell if you won't sell. It was all gain, no pain.

But those days are gone. And the pain seems like it's here to stay. wDo they deserve it? Is there any sympathy? E-mail your letters for publication to richard_wood@idg.com.au

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