Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 3

During the early days of the Internet, most dot-coms were driven by revenues rather than profits. A large number were even driven by "hits" to their site rather than revenues. This all changed in early 2000, however, when the prices of unprofitable dot-com stocks plummeted on Wall Street. Most analysts have attributed this to a return to rationality, with investors focusing once again on fundamentals like earnings growth. Does this mean that, during the 1990s, dot-coms that focused on "hits" rather than revenues or profits had bad business plans? Explain.