Back to Basics: Forecasting the Revenues of Internet Firms

37 Pages Posted: 29 May 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: April 2000

Abstract

In light of the importance of revenues in the valuation of internet stocks, this paper examines the roles played by analysts, past revenues, and web usage data (unique visitors, pageviews, and minutes spent at a firm's web sites) in the forecasting of future revenues. In contrast to evidence from other industries, we find that analysts' revenue forecasts almost always underestimate the revenues of internet firms. Historical revenue growth is shown to have incremental predictive power over analysts' forecasts, more so for our sample of portal and content/community firms than for our e-tailer sample. Estimates of web usage growth, on the other hand, generally have significant incremental value for predicting the revenues of the e-tailers, but little predictive power for the revenues of the p/c firms. Finally, we examine whether measures of web traffic have incremental value in the prediction of revenues above time-series forecasts. This issue is especially important when valuing firms with little or no analyst coverage, where there is, of necessity, an increased reliance on historical revenues for forecasting purposes. We find that all three web usage metrics do have significant incremental predictive power.

JEL Classification: G10, M41, G12, G29

Suggested Citation

Trueman, Brett and Wong, M.H. Franco and Zhang, Xiao-Jun, Back to Basics: Forecasting the Revenues of Internet Firms (April 2000). Available at SSRN: https://ssrn.com/abstract=224597 or http://dx.doi.org/10.2139/ssrn.224597

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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