“What goes up/must come down,” sang the somewhat haphazard yet pleasant looking sock puppet, the loyal mascot and symbol for one of the tech bubbles most visible companies, Pets.com. Little did the puppet, or anyone else for that matter, know that he was speaking the words in prelude to an impending disaster in the stock market.
It was January 2000 and Alan Greenspan’s warning of “irrational exuberance” was already more than four years old. Nonetheless, the market pressed on setting what seemed like new highs on a daily basis. We had survived Y2K swimmingly and as a financial adviser I was looking forward to the bevy of tech companies about to launch in the coming months. One company I was particularly excited about was Pets.com who began blitzing the public with hoards of advertising. “Because pets can’t drive” became a catch phase everywhere for brokers who just couldn’t wait to get the company in their own portfolios.
On that January day, I attended a mandatory advisers meeting to discuss the current state of the stock market. Addressing us that day was one of the companies more notorious ‘bears.’ Since he was constantly down on the markets, we all knew we would get a lesson on how the NASDAQ couldn’t possibly sustain it’s gains.
The analyst, affectionately nicknamed ‘Yogi,’ didn’t disappoint. After his 30 minute barrage on all things equity, it was time for Q & A. That’s when I had the guts to raise my hand and ask his opinion of Pets.com. Frankly, I didn’t care about his opinion, but I wanted to flame the fire in the angry hearts of my fellow brokers who simply wanted to get back to their precious stock charts. .
“Pets.com,” he said slowly. “Are you kidding me?” I could see the disappointment in his face once the word “pet” left my mouth.
Simply stated, Yogi explained that the company was a loser – the business model flawed. Sure you could buy a bag of dog food online for a dollar less than you could at a local market but who cared if shipping costs two dollars, he explained. “Besides,” he want on to say, “don’t people need to go to the grocery store anyway?” He proclaimed his belief that at least half of the tech companies attempting to launch IPOs in the current months had serious defects in their business models. None more so than Pets.com.
Thanks for raining on my parade.
Nonetheless, Pets.com did go public in February of 2000. It filed for bankruptcy by November of the same year. Despite all the advertising, the raising of close to $100 million in capital, a great slogan and advertising gimmick, and free press thanks to the sock puppet, the company failed to turn a profit.
Yes – the business model certainly was flawed.
Though the tech bubble had already burst by then, no one saw the flurry of company failures that would follow. Among the more visible were One.Tel, Napster, Ready2shop.com, and WorldCom.
In the end, Yogi and Federal Reserve Chairman, Alan Greenspan were correct – the bubble and ‘irrational exuberance’ would prove more devastating than anyone could have imagined. Markets sank drastically and trillions were lost in institutional and private assets.
By 2001, Pets.com was simply a forgotten nightmare.
The only survivor was the sock puppet who began to appear in commercials for Bar None, Inc. But ten years later, he didn’t seem as cute or playful as he was in the late 1990s. He was just a simple reminder of our own greed and lack of reason.