A:

It is important to add a little sophistication to any review of the historical stock returns for companies in the Internet sector. An asterisk has to be placed on any stock returns during the rise of the dot-com bubble in the mid- to late-1990s, when the Nasdaq exploded and tech companies made a fortune on IPOs despite lacking fundamentals. There is also the trouble of defining an "Internet" company. During the 10-year period between mid-2005 and mid-2015, the Internet sector returned 9.14% per year compared to an S&P 500 average of 7.27% and an overall Nasdaq average of 13.96%.

Defining the Internet Sector

Some publications count any online-based company in the Internet sector. Others consider Internet to only be a subsector of the technology sector, making Facebook the same type of company as Samsung or Microsoft.

One official characterization comes from the Department of Homeland Security, or DHS. DHS says the Internet sector is actually a "collaboration" between the information technology, or IT, sector and the communications sector. Examples of DHS-designated companies include Amazon, Google, Facebook, eBay and CISCO.

The Dot-Com Bubble

The 1990s saw financial deregulation, a steady low-interest rate environment and a worldwide fascination with the rise of the Internet industry. Internet returns exploded and the Nasdaq surpassed 5,100 in March 2000. By mid-2001, it fell back down to 1,300, or about a 75% loss.

Growth during the dot-com era was not indicative of the real performance of Internet stocks or the Internet sector as a whole. Some believe a new Internet bubble has been blown up in the aftermath of the Federal Reserve's quantitative easing program. For example, the highest Nasdaq valuation in the period between 2002-2011 was just shy of 2,900; this despite enormous growth in the use and utility of the Internet. By mid-2015, however, it gained 40% on that high to finish near 5,100 again. This may mean returns between 2011-2015 should not be considered normal either.

RELATED FAQS
  1. What portion of the global economy is represented by the Internet sector?

    Find out the size of the global Internet sector, how much of the global economy it represents and what businesses are included ... Read Answer >>
  2. What is the internet sector?

    Learn what products and services comprise the Internet sector and some of the key companies that shape it. Also what part ... Read Answer >>
  3. What developed countries have the greatest exposure to the Internet sector?

    Find out which developed countries have the greatest exposure to the global Internet sector, lead by global Internet companies ... Read Answer >>
  4. What are the main reasons for investing in the internet sector?

    Explore key reasons for investing in companies in the Internet sector. Learn about leading companies delivering products ... Read Answer >>
  5. What emerging markets are best positioned to benefit from growth in the Internet ...

    Explore which emerging markets are best positioned to benefit from the growth in the Internet sector. The sector continues ... Read Answer >>
  6. What is the average price-to-earnings ratio in the Internet sector?

    Learn what the average price-to-earnings ratio, or P/E ratio, is for companies in the Internet sector and how the sector ... Read Answer >>
Related Articles
  1. Small Business

    Why Social Media Isn't Like The Dotcom Boom

    Many investors see social media stocks as a bubble waiting to burst. Find out why they're wrong.
  2. Investing

    How The Internet Has Changed Investing

    Discover the significant impact the Internet has had on how we invest and view the markets.
  3. Taxes

    Pros and Cons of an Internet Sales Tax

    Learn about the pros and cons of a nationwide Internet sales tax and the different bills that have been proposed to establish laws regarding Internet sales.
  4. Retirement

    Internet, Mobile Phone Usage Slowing (AAPL, GOOG)

    Internet usage and smartphone demand are starting to slow, which may not bode well for Apple and even Google, according to KPCB's Internet Trends report.
  5. Investing

    Samsung to Invest $1.2B in Internet of Things

    Samsung Electronics is investing $1.2 billion in the U.S. to further expand the market of internet-connected devices known as the Internet of Things.
  6. Insights

    How Trump’s Presidency Might Affect Net Neutrality

    The internet industry is scrambling to figure out what implications Trump's presidency have on open internet rules.
  7. Personal Finance

    E-Marketing Specialist: Career Path & Qualifications

    Learn more about the duties and responsibilities performed by eMarketing specialists and common career paths this profession takes.
  8. Taxes

    Revisiting the Internet Sales Tax Bill: 2013 Vs. 2015

    Learn about the Marketplace Fairness Act of 2015 being reviewed by congress and the differences between it and the 2013 Marketplace Fairness Act.
  9. Investing

    3 Large-Cap Stocks That Are Still Far From Their Dot-Com Bubble (CSCO, INTC)

    Review three large-cap technology stocks that were among the biggest names in the sector in the dot-com era but are still far from their highs in 2000.
RELATED TERMS
  1. Internet Bubble

    A rapid rise in equity markets caused by speculation into online-based ...
  2. ISP (Internet Service Provider)

    A company that provides consumers, businesses, and other Internet ...
  3. Network Effect

    A phenomenon whereby a good or service becomes more valuable ...
  4. Web 2.0

    A term used to describe companies, applications and services ...
  5. Financial Sector

    A category of stocks containing firms that provide financial ...
  6. New Economy

    A buzzword describing new, high-growth industries that are on ...
Hot Definitions
  1. Five Cs Of Credit

    A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics ...
  2. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  3. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  4. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  5. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
Trading Center