Effects of Web traffic announcements on firm value

Data from independent rating firms on traffic to commercial Web sites are routinely used in financial valuation models and in determining advertising rates. These metrics are not always reliable because third-party estimates of Web traffic are vulnerable to technical and methodological weaknesses. Nonetheless, many companies issue press releases proclaiming their achievement of Web traffic milestones. In this article, standard event-study methodology is used to examine how Web traffic announcements affected firm value in the period from 1996 until 2001. The findings indicate that announcements increased firm value only in 1996-1999, and that the increases were indeed due to the announcements rather than the Internet Bubble. The announcing firms, regardless of business model, trading age, financial performance, and other characteristics, experienced value increases of about 5 percent around the time of the press release. This evidence documents the extent to which the market reacted to Web traffic indicators in the late 1990s despite their shortcomings.