TABLE OF CONTENTS A number of recent papers have attempted to value Internet firms using a combination of accounting and non-financial measures. Hand (2000a, b), Trueman, Wong and Zhang (TWZ, 2001a), Rajgopal, Kotha and Venkatachalam (RKV, 2000) and Demers and Lev (2001) provide evidence that Internet firms' earnings are generally not priced (or in some cases negatively priced). In the absence of positive and significant results for net income, several of these earlier papers attempt to use earnings components such as revenues to explain firm valuations. The evidence from those studies is generally mixed, with revenues, marketing expenses (a component of SG&A) and R&D all showing some signs of being positively and significantly valued. Results from Kozberg (2001), which includes more recent data than prior studies, provides evidence that net income has become positively priced for Internet firms in general and for most business models over time. In addition, SG&A and R&D both show stronger evidence of being positively and significantly priced for the overall sample as well as most individual business models. Finally, non-financial measures such as reach, pageviews and advertisements are shown to be priced for Internet firms in general. None of these papers, however, make any attempt at directly examining the determinants of activity and the ability of firms to convert that activity into revenues.
Trueman, Wong and Zhang (TWZ, 2001b) utilize current financial and non- financial data in the prediction of Internet firm revenues, which it suggests are a key driver in the valuation of these...
