How Alexa Can Help To Analyze Stocks

There is a way to see with more clarity how some companies are doing now and what is facing them in future. It is a very simple way of estimating internet-dependant companies, I would like to name it “Alexa Indicator”.

There are some companies with a model of business 100% dependant on web-related transactions. Their sales are very much tied up with number of visitor sessions of their web sites. More visitors means more sales. More sales – more profits. More profits means increase of stock price, after the end-quarter report and financial outlook for the next one. However, there is a way to estimate company’s revenue beforeВ the end-quarter report.

So, it’s mostly leading indicator, because usually traffic comes first, then - revenue from sales or services.

I’m going to provide several examples of public companies where “Alexa Indicator” works and where you can clearly see how these companies are doing without waiting for their press-release.

Salesforce.com

Provides on-demand customer relationship management (CRM) services. How it works? They charge every user for ability to consume their web-based CRM solution. More accounts - more revenue.

Key points: decrease of traffic (August-September 2004) caused decrease of stock price in second half of 2004. Increase of traffic in January 2005 caused increase of stock price (May-December 2005). Decreased traffic (sharp drop in January 2006) caused stock price decline later on.

В В 

Ebay.com

Online auctions web site. More users visit Ebay - more sales done by sellers, more comissions received by Ebay.

Key points: Ebay traffic was mounting up until first quarter of 2004, then - very sharp decline. What happend to Ebay stock? We observe climbing price until November 2004, then almost free fall from $59 to $32. Then traffic started to jump up on fourth quarter of 2004 and reached its peak on January 2006, then declined. Sure enough, in April 2005 stock started to move up and was growing until beginning of 2006. Then, again, declined from $45 to $25.

Of course, there are always additional factors, which can abberate the correlation. For example, some company may invest a lot in advertisement, trying to bring millions potential customers to its web site. If customers don’t like a product or services most of the ad money will be wasted. There are also more things which have to be taken into account. I’ll explain them below.

Travelocity.com (Sabre Holdings)

A flagship of Sabre Holdings web fleet. Online hotels / tickets service.

Sabre stock is not going anywhere. It was about $22 in 2003, then it went up to $27, then - declined to $19 and went up a little bit, to $22. Traffic of travelocity was up and down.
Juji (another web service owned by Sabre Holdings) growth in Asian Pacific region helps Sabre to increase the revenue.

В В 

Expedia.com

Another online hotels / tickets service.

В В 

Infospace.com

Directory services, mobile content, information services for consumers.

Decrease of popularity means decrease of visitors, which (with some delay) affects the stock.

В В 

“Alexa Indicator” does not work when…

1. The web site of the company way too popular. Example - Google, Yahoo and others from top 10-20.
2. The company is not receiving 100% of revenue from online services. Example - Amazon (it has supply chain management system, which is being leased by other companies, plus, it has a lot of affiliates, so overall traffic cannot possibly be counted accurately).
3. The company has poor management, which spends money not wisely. Example: a company (no names here) which is trying to sell bad (low quality, unpopular, overpriced, etc) product and services, but, instead of investing in improvements, it spends tons of money to drag visitors onto their site.

There could be some other cases may affect “Alexa Indicator” accuracy.В 

Just to be clear: I don’t own any stocks of companies highlighted in this article. I’m not advising to buy or to sell any stocks. The only purpose of this article is to show additional ways for stocks / companies analysis and evaluation.

All charts are courtesy of alexa.com and reuters.com.