The Eyeballs Have it: Searching for the Value in Internet Stocks

38 Pages Posted: 15 Feb 2000

See all articles by Brett Trueman

Brett Trueman

University of California, Los Angeles (UCLA) - Anderson School of Management

M.H. Franco Wong

University of Toronto - Rotman School of Management

Xiao-Jun Zhang

University of California, Berkeley - Accounting Group; China Academy of Financial Research (CAFR)

Date Written: January 2000

Abstract

In this paper we provide insights into the manner in which (relatively sparse) accounting information, along with measures of internet usage, are employed by the market in the valuation of internet firms. Consistent with those who claim that financial statement information is of very limited use in the valuation of internet stocks, we are unable to detect a significant positive association between bottom-line net income and our sample firms' market prices; in fact, the association is actually negative. However, when we decompose net income into its components, we find gross profits to be positively and significantly associated with prices. In addition, both unique visitors and pageviews, as measures of internet usage, are found in most instances to provide incremental explanatory power (in some cases considerable) for stock prices. We also separately analyze the e-tailers, and the portal and content/community firms (the p/c firms) in our sample. For the e-tailers we find that bottom-line net income generally has a negative association with stock prices (as for the sample as a whole), while a positive and significant association exists for the p/c firms. In this respect, p/c firms' shares behave more like those of non-internet companies. Further, we find for the p/c firms that the incremental explanatory power of pageviews and of unique visitors is approximately the same; in contrast, pageviews has much greater incremental explanatory power for the e-tailers than does unique visitors. This suggests that pages viewed per visitor is an especially important metric for the e-tailers, as compared to the p/c firms.

JEL Classification: G10, M41, G12

Suggested Citation

Trueman, Brett and Wong, M.H. Franco and Zhang, Xiao-Jun, The Eyeballs Have it: Searching for the Value in Internet Stocks (January 2000). Available at SSRN: https://ssrn.com/abstract=206648 or http://dx.doi.org/10.2139/ssrn.206648

Brett Trueman (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-4720 (Phone)
310-267-2193 (Fax)

M.H. Franco Wong

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

Xiao-Jun Zhang

University of California, Berkeley - Accounting Group ( email )

545 Student Services Building
SPC 1900
Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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