Discussion of the Eyeballs Have it: Searching for the Value in Internet Stocks

Abstract

This commentary describes an internet valuation paper by Trueman, Wong and Zang (TWZ) presented at the 2000 Journal of Accounting Research conference. TWZ investigate the role of accounting and internet use data in valuing internet firms, using a residual income valuation model and two "eyeball" measures of web activity. TWZ reveals that internet valuations in the 1998-99 period were consistent with investors: (1) differentially weighting permanent and transitory income statement components, (2) relying on non-financial measures of internet use, and (3) using different models for e-tailer vs. portal/content firms. Since the internet is a nascent industry, the TWZ's analysis is constrained by the short trading history, limited financial and non-financial data, and a small sample size. This commentary describes econometric, modeling, and interpretation-related concerns with the TWZ paper and offers suggestions for future research on "New Economy" firms.