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Chapter 527 The Soaring Concept of the Internet

Back in his office, Ernst casually tossed his suit jacket onto the sofa, his gaze sweeping over the coffee table piled high with documents.

These documents are files on startups that Ernst Asset Management recently invested in, and were sent to them earlier by Jane Fraser through her secretary.

Of these favored startups, 99% are concentrated in the internet sector, covering almost all segments of the current internet industry, from e-commerce platforms to social networking applications, from search engine tools to online service providers.

Ernst casually picked up a few documents and began to look through them; the contents made him frown.

All I can say is that these companies' IPO prospectuses and Ernst Asset Management's pre-investment due diligence reports are utter rubbish.

None of them provided a complete overview of market analysis, profit models, financial forecasts, or risk control mechanisms. What they described were empty hype and vague development plans, lacking any business logic whatsoever.

Some companies even just state in a few sentences how many employees they have, what they are going to do, and who they want to replace in the future.

Throwing the documents on the table, Ernst muttered to himself, "It's that simple, yet it's possible to raise money."

An excited and joyful smile appeared on his lips. "It has entered a completely open mode. The internet bubble is simply out of control."

The current market environment has long since deviated from the normal track of business development, and the valuation system of the Internet industry is completely out of step with the times.

It departs from the traditional logic of value assessment.

According to classic economic theory, when signs of a market bubble appear, the Federal Reserve's interest rate hike policy can often curb speculation, stabilize the market, and guide funds from high-risk areas to low-risk assets.

However, given the current market situation, even if the Federal Reserve initiates interest rate hikes, it is unlikely to change the flow of capital.

The wealth growth rate brought about by the Internet industry is too tempting; one can earn more than ten years' worth of bank interest in just six months.

If you pick a good stock, you can even get several times the return on your investment.

This unprecedented accumulation of wealth has driven global capital into a frenzy of pursuit. No one wants to miss out on this wealth feast, and risk aversion has been completely forgotten under the lure of huge profits.

Moreover, the Federal Reserve has not raised interest rates; instead, it has implemented interest rate cuts twice in August and October, with a cumulative reduction of 50 basis points.

This injected more liquidity into the already overheated internet market, with a large influx of low-cost funds further inflating the valuation bubble of internet companies.

In the words of Federal Reserve Chairman Alan Greenspan, the Internet is a new economy, which follows different rules from the traditional economy, and its future is unimaginable.

When Ernst saw this, he thought, "If you're being coerced, blink twice. Is this something a Federal Reserve Chairman should say?"

Anyone in the financial world, even a fool, can see that the internet industry is somewhat out of control. The vast majority of internet companies are merely at the level of conceptual hype, neither creating actual social value nor forming a sustainable profit model. Their so-called high valuations are entirely based on mutual pursuit by capital.

Look at startups these days. This week alone, 17 internet companies are queuing up for IPOs, and six of them haven't even clearly defined their profit models.

The second half of this year isn't even over yet, and the number of startups has already tripled compared to last year, with over two thousand new .com companies registered in Silicon Valley alone.

Ernst recalled what Jane Fraser had just told him: "I'm filled with fear right now. Any company with .com in its name can double in value. Who cares about profits? Raise money first."

"This bubble is probably bigger than it was in 1929. When it bursts, I can't even imagine what kind of hellish scene it will be."

"Just last week, an e-commerce company that was founded less than a month ago and specializes in selling pet supplies actually managed to secure eight million dollars in Series A funding. I simply couldn't believe my ears."

Ernst knew about this. Ever since flash sale platforms rose rapidly and achieved great success with their innovative models, all kinds of e-commerce companies have sprung up like mushrooms after rain, just like an uncontrollable physiological urge in the early morning.

Afeier had mentioned to him that in just the past month, the number of newly registered e-commerce companies in the United States had reached three to five hundred, and the business models of these companies were almost all simple imitations of flash sale platforms.

Because flash sales are so popular, they make it easier for entrepreneurs to raise funds and for investors to make money.

Both sides tacitly fell into a cycle of creating a concept, raising funds, raising more funds, and going public, with no one truly caring about the company's long-term development.

Thinking of this, Ernst shook his head helplessly, a slight smile playing on his lips.

These internet startups are no longer just copying one of his companies, but rather completely copying him as a whole.

For investment institutions, it boils down to one sentence: "We'll invest $200 million in exchange for 30% of your company's shares. Within six months, your company must reach one million users, otherwise, a second round of financing is out of the question."

Once the money reaches the entrepreneur, the first thing they do is turn their PowerPoint presentation into a website.

They simply didn't have the time or energy to refine their products, optimize their services, or explore profit models; their only thought was to meet the user count target within the specified timeframe.

As for how they managed to get over a million users in six months, all I can say is that the clothing business in America is getting harder and harder to run now; if you didn't know better, you'd think they were in the Great Depression.

On the streets, you can see pedestrians wearing T-shirts with the website addresses of various Internet companies printed on the back. As long as users register an account on the company's website, they can receive a free T-shirt with the website address printed on it.

It's said that many places have even moved computers to the roadside, where you can register on the spot and just grab your clothes and leave.

Who cares if you use it or not? For a startup, what I need is a large user base.

Greg had told him that his Greg Trading Company was doing incredibly well lately, with the phone ringing off the hook every day as various companies asked them to help purchase clothes.

It can only be said that from the moment capital began to enter the Internet, this tree had already grown crooked.

Many investment companies don't understand the Internet at all and only focus on the number of users.

Ordinary stock market investors are even more clueless and can only look at the number of users.

In their eyes, the number of users of an internet company is equivalent to the sales revenue of a traditional company.

It doesn't matter if there's no profit; as long as the main sales volume continues to increase, there's plenty of room for imagination.

This blind pursuit led investment institutions to see a way to raise money through IPOs.

What about entrepreneurs?

My thought is whether I can secure a larger round of funding. Since all they care about is user numbers, I'll just buy users, even if they're all zombie users with no real value.

Then, someone started digging up Google's old tricks.

Not only are there all sorts of mobile websites everywhere, but many stock market investors also think that these are paid websites that have been shut down, and that they are some big companies with great development potential.

It's not wrong to say they spent money to beat GG; they really did put out real money.

As for what constitutes development potential, it's nothing more than psychological suggestion.

When a company's name appears in front of you several times a day, over time, your subconscious will start to think that it is a company with some strength.

Hearing the door open, the secretary came in carrying coffee.

Ernst pointed to the desk, indicating that the other person should take the coffee there.

He then stood up, walked to his office chair, sat down, and looked at the computer.

The market capitalization figures of several leading internet companies listed on Nasdaq are particularly striking, with their growth rate being nothing short of phenomenal.

Yahoo's market value has surpassed the $300 billion mark. As for its crappy search engine, in Larry Page's words, even his nephew could write it in three months.

Cisco's market capitalization soared to a high of $3200 billion, making it the world's second-largest technology company after Microsoft.

As a company focused on network equipment manufacturing, Cisco's business is closely related to the Internet industry, and its valuation has far exceeded the reasonable range of traditional manufacturing, and it is now regarded as an Internet concept company.

The same is true for Intel, whose market capitalization reached $2684 billion.

After shedding the heavy burden of Bell Labs, Lucent Technologies' market capitalization surprisingly surpassed Intel's, exceeding $2643 billion.

This was somewhat unexpected for Ernst; the market value had increased by at least four or five hundred billion US dollars compared to the original world.

But what surprised him even more was AOL and Microsoft, those two scoundrels who had come together in cahoots.

ICQ has indeed been revived, with Microsoft investing in AOL through a combination of cash and technology.

However, Ernst never expected AOL's development strategy for ICQ. If Google QQ was following the path of an enhanced version of QQ, then AOL was following the Momo model, focusing on male-female dating.

Of course, this is the official statement.

In Hamilton's words, isn't that just casual sex?

Relying on this hookup feature, ICQ's user base skyrocketed, surpassing 800 million users in less than six months.

And the growth momentum shows no signs of slowing down.

AOL, thanks to the popularity of ICQ, tripled its market value in six months, reaching $1620 billion, with a price-to-earnings ratio of over 270.

Another example is Microsoft, which lost out to Google in the internet field, resulting in a significant loss of its strength.

However, its market value still exceeded $5000 billion, although it was definitely not as high as the market value at the original historical point.

Just as Ernst was about to check the stock prices of other newly listed internet companies on Nasdaq, he sensed that Shuangzhu had been tricked.

He looked down and saw that his secretary was already kneeling on the carpet, looking at him pitifully with a pleading and seductive expression.

"You little slut..."