5 Successful Companies That Survived The Dotcom Bubble

By Jean Folger | July 27, 2011 AAA
5 Successful Companies That Survived The Dotcom Bubble

The dotcom era was a speculative bubble formed by the rapid rise and interest in internet companies. During the five years leading up to the peak, many businesses were born with the primary focus of gaining market share through brand building and networking. The theory was that out of a collection of like companies, one was bound to "make it", and businesses and investors alike were more than willing to put their bets on the table. Getting big fast was key to survival, as companies raced to acquire substantial market share, sacrificing profits along the way. With an unprecedented amount of individual investing, the boom pushed the Nasdaq Composite Index to an all-time high of 5132.52 on March 10, 2000.
On March 10, 2000, the Nasdaq reached an all-time high of 5132.52, after which the index faltered until October 9, 2002, having lost 78% of its value.

TUTORIAL: Market Crashes: The Dotcom Crash



The next day, the bubble popped and one company after another imploded, fueling an internet sector freefall that lasted for the next two and a half years. Businesses and investors were forced to acknowledge that venture capital and initial public offerings did not guarantee income or make up for the lack of sound business plans. With the spectacular rise and subsequent crash of many of these dotcom companies, few were left standing after the dust had settled. (For related reading, see 5 Steps Of A Bubble.)

1. Amazon.com (Nasdaq:AMZN)
Founded by Jeff Bezos in 1994, Amazon is the largest online retailer in the world. In 1995, Amazon made its online debut as a bookstore, eventually adding movies, music, electronics, computer software and many other consumer goods to its diversified offerings. Amazon's initial public offering took place on May 15, 1997 at a price of $18 per share, rising to more than $100 and subsequently dropping to less than $10 after the bubble burst. Like other dotcoms, Amazon's business plan focused more on brand recognition and less on income, and it did not turn a profit until the fourth quarter of 2001. Today, Amazon trades at over $200 per share, and employs more than 37,000 people with reported net sales of $9.86 billion. (The initial valuation of an IPO can determine the success or failure of a specific stock, but how is that price determined? For more, see How An IPO Is Valued.)

2. eBay (Nasdaq:EBAY)
Founded by Pierre Omidyar in 1995, eBay is a popular online auction and retail presence. eBay showed extraordinary growth early on, as the number of hosted auctions flew from 250,000 during 1996 to 2 million during just the first month of 1997. On September 21, 1998 eBay went public at an IPO price of $18; prices had no trouble topping $53 on the first day of trading. eBay expanded its product categories to include practically anything that can sell - from antiques and gold coins to automobiles and real estate - and also incorporated different, more popular types of auctions. These moves proved successful for eBay, which now has more than 17,000 employees with reported revenues topping $9 billion. (For related reading, see 8 Secrets For Selling On The New eBay.)

3. Priceline.com (Nasdaq:PCLN)
Founded in 1998, Priceline is a travel-related website that helps users find discount rates and name their own prices on hotels, car rentals, airfares and vacation packages. Priceline shares jumped from $16 to $86.25 during its first day of trading in March, 1999, only to fall to less than $10 over the next couple of years. Following the September 11, 2001 terrorist attacks, the entire travel industry faced challenges. In 2002, Priceline's then-new CEO, Jeffery H. Boyd, rebuilt the Priceline brand around hotels - rather than on airfares - and expanded its market in Europe. Priceline currently works with a network of over 100,000 hotels in more than 90 countries, and has enjoyed both revenue and net income growth over the last several years. Today, its shares trade at over $500.

4. Shutterfly (Nasdaq:SFLY)
Shutterfly is an internet-based personal publishing service that allows users to create prints, calendars, photo books, cards, stationery and photo-sharing websites. Founded in 1999, Shutterfly survived the dotcom bust to go public on September 30, 2006 with an IPO share price of $15.55. Shutterfly is up against big competitors, including Snapfish and Kodak. According to InfoTrends, the three companies together control approximately 85% of the online photo and merchandise market. Today, Shutterfly trades above $60 per share.

5. Coupons.com (privately held)
Steve Boal founded Coupons.com in 1998 after realizing that the coupon business had yet to adapt to the new internet economy. Three years later in April, 2001, the company issued its first digital coupon; two months later, it launched its own destination website. In June, 2011 Coupons.com attracted $200 million from institutional investors, money that will be used to expand services and increase hiring. The company is currently valued at $1 billion and may be looking at an initial public offering in 2012. Coupons.com cites declining newspaper readership and increased grocery costs as factors in the growth of online couponing. (For more on private companies, see How To Invest In Private Companies.)

TUTORIAL: Market Crashes: Housing Bubble And Credit Criss (2007-2009)

The Bottom Line
In the mid to late 1990s the Internet was a relatively new animal, and the businesses that sprung to life did so with ambition, hope and, at times, shaky business plans. While many of the companies experienced huge and rapid growth - its owners becoming instant millionaires - a significant proportion crashed and burned just as quickly. Some companies were able to adapt through reorganization, new leadership and redefined business plans, making them the survivors of the dotcom bubble.

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