Last Breaths of theglobe.com?

Bob Bobala can empathize with being swept up in a wave of irrational exuberance in the case of companies like theglobe.com. But it always comes back to basics when you're getting ready to fork over the bucks: How will the company make money, and then more money? For theglobe.com and its dot-bomb ilk, the answers were never there. The money shouldn't have been either.

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By Bob Bobala (TMF Bobala)
August 6, 2001

The poster boy for both Internet success and excess, theglobe.com (OTC: TGLO) announced Friday that it was closing its online community business and significantly cutting back its online game operations. That doesn't leave a whole lot left, and accordingly the company laid off half of its already-reduced staff and closed its New York headquarters. It plans to move its 60 remaining employees to a smaller location by mid-August.

Ah, how ideas of such grandeur can so quickly turn to dust. With a name like theglobe.com, you know twentysomething co-founders Stephan Paternot and Todd Krizelman were thinking big when they started the company in 1994 and shepherded it through six rounds of both private and public financing to the tune of nearly $200 million.

The company went public on Nov. 12, 1998 with an initial offering price of $9 -- or a split-adjusted $4.50 -- per share. Shares rose more than 900% that day before closing up 606%, at $63.50 -- the largest opening-day gain of any IPO in U.S. history up to that point. (It was eventually outdone by VA Linux (Nasdaq: LNUX) 13 months later, as chronicled by Dave Marino-Nachison.)

At market close this past Friday, theglobe.com's shares stood at $0.14 and the company was valued at about $4 million. Yowza.

It'd make a good docudrama, really. Two college kids start an online community business and pay their first employees in pizza. They draw in a bunch of big-wig investors and their paper worth is $75 million each after a manic IPO. (They must have been pretty stoked when we interviewed them in our StockTalk feature back in 1999.) They even have a secondary offering on the public markets -- and everything is looking pretty sweet until advertising revenues plummet and they realize they don't have much of a business model. Today they're fighting to survive and back to compensating their remaining employees in pizza.

It's sort of a sad story. After all, as the company says, "theglobe.com is a vibrant online community where millions of people around the world interact with each other around common interests and passions." That's the promise of the Internet, and how can you argue with that? But the problem, as we've seen time and time again in this post-bubble era, is turning a profit on those collective passions and interests.

One of these days, there will be more companies than just eBay (Nadaq: EBAY) that figure out how to do it. (Then again, I was one who thought eBay would never amount to more than a junk sale.)

But right now it's hard to have sympathy for the investors involved in the class action lawsuits filed against theglobe.com last week. After all, if you were part of the hysteria that pushed theglobe.com's shares up 900% at its IPO when the company had no proven business model and no profits, you were part of the problem.

Of course, hindsight is brilliance. I can empathize with being swept up in a wave of irrational exuberance. But it always comes back to basics when you're getting ready to fork over the bucks for a company: How is it going to make money? And how is it going to make more money than that?

For theglobe.com -- and Pets.com, and eToys, and Value America, and Webvan, and all rest -- the answers were never there. The money shouldn't have been either.

Bob Bobala gets irrationally exuberant over Ozzy Osbourne and other guilty pleasures, but rarely over unproven Internet companies. He doesn't own any of those mentioned in this story. The Motley Fool has full disclosure policy.

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