Interesting to think about the relationship between web site traffic volume and stock market valuation for Google, Microsoft, and Yahoo (Microsoft is probably an outlier here given their legacy software businesses, but I included them anyway because internet strategy is an increasingly important part of their overall business).

In particular, it looks like the last six months have been best for Google, despite the stock’s recent significant drop.

The above chart tracks stock price; actual market caps for Google, Microsoft, and Yahoo as of market close on 2/15/06 were $101B, $278B, and $47B.

Google’s performance is supported by the dramatic increases the company has made in “reach.”

For the curious, Alexa defines reach as follows:

Reach measures the number of users. Reach is typically expressed as the percentage of all Internet users who visit a given site. So, for example, if a site like yahoo.com has a reach of 28%, this means that if you took random samples of one million Internet users, you would on average find that 280,000 of them visit yahoo.com. Alexa expresses reach as number of users per million. Alexa’s one-week and three-month average reach are measures of daily reach, averaged over the specified time period. The reach rank is a ranking of all sites based solely on their reach. The three-month changes are determined by comparing a site’s current reach and reach rank with its values from three month ago.

However, Yahoo continues to dominate in terms of actual page views–and by a signficant margin.

So why isn’t Yahoo’s valuation higher? My take is it comes down to growth trends–Google is moving in the right direction, and Yahoo isn’t.

Posted by Dan Grossman on Wednesday, February 15th, 2006 at 9:18 pm.