Please ensure Javascript is enabled for purposes of website accessibility

1 Dot-Com Bubble That Never Burst

By Justin Loiseau - Oct 22, 2012 at 5:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A double-bagger goes private while other dot-coms hang on.

Ancestry.com (ACOM) isn't feeling its age today. European private equity firm Permira has agreed to buy the genealogy website for $1.6 billion, according to The Wall Street Journal. A lot of investors are undoubtedly wiping the sweat off their brows at this news, and rightly so. Keep reading for the details of Ancestry.com's buyout, as well as three Internet companies still getting mauled by Mr. Market.

The details
Ancestry.com first went public in November 2009 at $13.50 a share, and ultimately topped out at $45.70 in April 2011. The website currently has over 2 million subscribers, and its newest purchasers are hoping to grow that base through a combination of improved technological offerings and international growth.

As of this writing, neither buyer nor seller has confirmed the buyout on their respective websites, but Ancestry.com has been in the auction process for quite some time. Expectations of a buyout have most likely been the cause of the company's stock price jump over the past six months. From a May low of $20.82, shares closed at $29.18 on Friday and will be bought for the equivalent of $32.

Bubble burst?
For many in the dot-com investing world, this move will be remembered as a "got in, got out" moment for Ancestry.com. Its IPO was generally viewed as a success, and any investor lucky enough to have "got in" at the start will "get out" with a 237% gain.

Internet services have been poked and prodded over the last couple years, as recovery spikes wear off and investors question the real added value of many of these companies' offerings. Here are three Internet companies with three different recipes for e-disaster:

  1. Groupon (GRPN 0.58%): The stock is down 82% in the last year, as competitors sprout like weeds and sponsored companies are increasingly disappointed with Groupon's offerings. LivingSocial, Google (NASDAQ: GOOG) Offers, Deal Chicken, and dozens more are all trying to get a piece of this company's action. 
    But Groupon's piece of pie might not even taste that good. Travelzoo (NASDAQ: TZOO) reported disappointing earnings this week, and may be the next company to trash Groupon's "flash-sale" model. American Apparel saw a great Q4 in 2011 thanks to a boost from Groupon sales, but promptly dropped back down again in Q1 2012. 
  2. Netflix (NFLX 1.98%): In July 2011, this movie rental company's shares soared to $300, the peak of prosperity... before promptly falling to their $64 price today. Shoddy managerial decisions played an important role in this company's tumble, but no one expected the real culprit.
    Coinstar (OUTR), a company that rents physical movies in red boxes outside gas stations, has taken off across the nation. Starry-eyed Internet investors would never have believed that this old-school video rental could dent Netflix's stronghold, but its revenue has rocketed from $307 million in 2007 to $1.8 billion in 2011. Not bad for a revamped mini-Blockbuster. 
  3. Facebook (FB 1.83%): One of the biggest IPO flops in recent history, Facebook hit the Nasdaq in May 2012 at $38 a share. Currently, it's trading at just over $19. So why doesn't anyone like Facebook? Turns out, Facebook's 1 billion users are incredibly hard to monetize, and are getting harder to monetize as mobile usage ramps up.
    The company relies on advertising as its main source of revenue -- and Facebook "sponsors" ain't buyin' if Facebook's users ain't, either. Plus, recent research suggests that many of Facebook's users aren't real people, and are actually just "web bots" clicking away, with no credit card to back them up. One online company found that 80% of its ad clicks originated from bots. 

These three companies have fallen from great heights, but they've still got a loyal fan base among some Internet investors. Likewise, Ancestry.com's growth days may be behind it, or they may be yet to come. But either way, this is one dot-com story that will not end its public days in infamy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ancestry.com LLC Stock Quote
Ancestry.com LLC
ACOM
Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$195.19 (1.98%) $3.79
Coinstar, LLC Stock Quote
Coinstar, LLC
OUTR
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$195.13 (1.83%) $3.50
Groupon, Inc. Stock Quote
Groupon, Inc.
GRPN
$15.58 (0.58%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.