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The Relevance of Traffic for Internet Stock Prices

Author

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  • Venkatachalam, Mohan

    (Stanford U)

  • Rajgopal, Shivarum

    (U of Washington)

  • Kotha, Suresh

Abstract

We find that web traffic is relevant for explaining market values and stock returns of pure Internet companies after controlling for accounting information such as book and values earnings. However, we find weak associations between web traffic and sales levels and sales growth. We conjecture that traffic creates future growth potential through network effects and customer relationships that do not necessarily result in current realized sales revenues. We provide preliminary evidence in support of this conjecture by documenting strong associations between acquisition prices and website traffic for a sample of Internet acquisitions.

Suggested Citation

  • Venkatachalam, Mohan & Rajgopal, Shivarum & Kotha, Suresh, 2000. "The Relevance of Traffic for Internet Stock Prices," Research Papers 1616, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1616
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    References listed on IDEAS

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    1. Ittner, CD & Larcker, DF, 1998. "Are nonfinancial measures leading indicators of financial performance? An analysis of customer satisfaction," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 1-35.
    2. Lambert, RA, 1998. "Customer satisfaction and future financial performance discussion of are nonfinancial measures leading indicators of financial performance? Are analysis of customer satisfaction," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 37-46.
    3. Shevlin, Terry, 1996. "The value-relevance of nonfinancial information: A discussion," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 31-42, October.
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    Cited by:

    1. Kothari, S. P. & Shanken, Jay, 2003. "Time-series coefficient variation in value-relevance regressions: a discussion of Core, Guay, and Van Buskirk and new evidence," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 69-87, January.
    2. Core, John E. & Guay, Wayne R. & Buskirk, Andrew Van, 2003. "Market valuations in the New Economy: an investigation of what has changed," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 43-67, January.
    3. Venkatachalam, Mohan & Rajgopal, Shivaram & Kotha, Suresh, 2000. "Does the Quality of Online Customer Experience Create a Sustainable Competitive Advantage for E-Commerce Firms?," Research Papers 1666, Stanford University, Graduate School of Business.
    4. Schultz, Paul & Zaman, Mir, 2001. "Do the individuals closest to internet firms believe they are overvalued," Journal of Financial Economics, Elsevier, vol. 59(3), pages 347-381, March.
    5. Durand, Robert B. & Koh, Shern-Wei & Ng, Hock Guan, 2003. "From gold to silicon," Journal of Multinational Financial Management, Elsevier, vol. 13(3), pages 273-286, July.
    6. Anderson, Keith & Brooks, Chris & Katsaris, Apostolos, 2010. "Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 345-361, June.
    7. Devi R. Gnyawali & Weiguo Fan & James Penner, 2010. "Competitive Actions and Dynamics in the Digital Age: An Empirical Investigation of Social Networking Firms," Information Systems Research, INFORMS, vol. 21(3), pages 594-613, September.
    8. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.
    9. Demers, Elizabeth & Lewellen, Katharina, 2003. "The marketing role of IPOs: evidence from internet stocks," Journal of Financial Economics, Elsevier, vol. 68(3), pages 413-437, June.
    10. Venkatachalam, Mohan & Davila, Antonio, 2001. "Non-financial Performance Measures and CEO Compensation: An Analysis of Web Traffic," Research Papers 1675, Stanford University, Graduate School of Business.
    11. Mark P. Bauman & Somnath Das, 2004. "Stock Market Valuation of Deferred Tax Assets: Evidence from Internet Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(9-10), pages 1223-1260.
    12. Natalie Burford & Andrew V. Shipilov & Nathan R. Furr, 2022. "How ecosystem structure affects firm performance in response to a negative shock to interdependencies," Strategic Management Journal, Wiley Blackwell, vol. 43(1), pages 30-57, January.

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