Dynamic Behavior of Revenue, Income, and Firm Value

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To evaluate the stages of pure e-tailers, C&M retailers, and B&M retailers during T1999–T2001, we propose a series of hypotheses. Our concern is how the behavior of pure e-tailers is different from traditional retailers, and how the introduction of online e-tailing to traditional retailing has influenced their performances in terms of revenue, income, stock price, and market capitalization. To compare the difference of mean values between groups, we performed the t-test. To study if there was dynamic change between two consecutive time points within each group, we performed the paired t-test. Note the test results summarized in Table 3 and 4 respectively.

Table 3: Test for Differences Using t-Test for T1999–T2001.

		Mean Values			t-Test for(G2-Gl)			t-Test for(G3-G1)			t-Test for(G3-G2)
		Pure Click (G1)	C&M (G2)	B&M (G3)	Difference	t	p-value	Difference	t	p-value	Difference	t	p-value
Revenue	1999	215,478.6	5,333,626.4	2,004,070.8	5,118,147.8	3.60	0.000	1,788,592.2	3.59	0.001	-3,329,555.6	-2 22	0.028
($thousand)	2000	408,328.6	6,332,120.2	2,416,346.7	5,923,791.7	3.46	0.001	2,008,018.1	2.84	0.006	-3,915,773.5	-2.14	0.034
	2001	480,928.6	7,221,200.5	2,644,386.0	6,740,271.9	3.40	0.001	2,163,457.4	2.81	0.006	-4,576,814.5	-2.18	0.031
Net Income	1999	-149,385.7	136,491.0	36,083.3	285,876.6	2.38	0.019	185,469.0	2.14	0.051	-100,407.6	-2.34	0.021
($thousand)	2000	-189,861.9	184,784.3	55,652.9	374,646.2	2.38	0.019	245,514.8	2.48	0.027	-129,131.4	-2.26	0.025
	2001	-145,121.4	184,216.9	46,941.7	329,338.3	1.72	0.088	192,063.2	4.04	0.001	-137,275.2	-2.00	0.048
Shares	1999	72,453.3	140,673.2	48,037.0	68,219.9	0.39	0.699	-24,416.3	-0.73	0.467	-92,636.2	-2.03	0.044
	2000	95,775.0	159,340.2	52,149.2	63,565.2	0.48	0.633	-43,625.8	-1.36	0.178	-107,191.0	-2.22	0.028
	2001	97,807.5	166,959.2	54,251.9	69,151.7	0.51	0.609	-43,555.6	-1.38	0.171	-112,707.3	-2.30	0.023
Stock P	1999	60.4	25.2	20.8	-35.3	-1.54	0.173	-39.6	-1.73	0.133	-4.3	-1.66	0.099
(US$)	2000	19.3	18.9	15.4	-0.5	-0.10	0.923	-3.9	-0.68	0.509	-3.4	-1.67	0.096
	2001	9.7	20.5	16.9	10.8	2.27	0.025	7.2	1.98	0.051	-3.6	-1.72	0.087
Market Cap	1999	8,715,891.5	5,962,290.1	1,350,307.3	-2,753,601.4	-0.32	0.747	7,365,584.2	-1.90	0.115	-4,611,982.9	-2.29	0.024
($thousand)	2000	3,263,998.1	6,217,249.4	1,015,334.0	2,953,251.3	0.41	0.686	-2,248,664.1	-1.43	0.175	-5,201,915.4	-2.02	0.045
	2001	1,855,024.2	6,742,740.9	1,264,932.5	4,887,716.8	0.66	0.510	-590,091.7	-0.62	0.535	-5,477,808.4	-2.09	0.039

Table 4: Paired t-Tests Between Two Consecutive Time Points.

		T1999 and T2000				T2000 and T2001
		Difference (T00–T99)	T	df	p-value	Difference (T01–T00)	t	df	p-value
Revenue ($thousand)	Pure Click	192,850.0	2.198	13	0.047	72,600.0	2.136	13	0.052
	C & M	971,824.7	2.972	110	0.004	833,754.6	2.848	109	0.005
	B & M	412,275.9	1.797	74	0.076	247,235.9	3.781	73	0.000
Net Income ($thousand)	Pure Click	-40,476.2	-0.527	13	0.607	44,740.5	0.661	13	0.520
	C & M	47,112.1	2.697	110	0.008	1,121.1	0.046	110	0.963
	B & M	19,569.6	2.417	74	0.018	-9,232.1	-0.687	73	0.494
Shares	Pure Click	48,039.0	1.575	6	0.166	2,032.5	0.300	13	0.769
	C & M	22,436.2	2.384	108	0.019	7,619.0	1.721	111	0.088
	B & M	5,013.0	0.653	70	0.516	2,102.7	1.514	72	0.134
Stock Price (US$)	Pure Click	-33.8	-2.403	6	0.053	-9.6	-2.640	13	0.020
	C & M	-6.2	-5.328	108	0.000	1.6	1.827	111	0.070
	B & M	-5.1	-3.945	70	0.000	1.5	1.641	73	0.105
Market Cap ($thousand)	Pure Click	-2,020,540.9	-1.923	5	0.112	-1,408,973.9	-1.669	13	0.119
	C & M	416,080.7	0.585	108	0.560	525,491.5	2.759	111	0.007
	B & M	-296,193.4	-2.316	69	0.024	249,598.5	3.090	72	0.003

Revenue

The belief on the potential of e-tailing stemmed from the extraordinary high revenue growth even though it may not have been profitable. We investigated whether the revenue growth of pure e-tailers continued during 1999–2001, and compare it with the growth of C&M and B&M.

H1a) The average revenue of pure e-tailers has significantly increased during T1999–T2001.

The average revenues of pure e-tailers in T1999, T2000, and T2001 were $215 million, $408 million, and $481 million. According to the paired t-test, the revenue growth is significant at 4.7% and 5.2% for T1999–T2000 and T2000–T2001 respectively. However, the growth rates for T1999–T2000 and T2000–T2001 are 89.8% and 17.9% respectively, which implies that the growth rate has significantly declined. Since the revenue growth before 1999 was higher than that of T1999, we can conclude that the revenue growth rate of e-tailers peaked in T2000, and the growth rate declined since then.

H1b) The average revenue of C&M has significantly increased during T1999–T2001.

The average revenues of C&M in T1999, T2000, and T2001 were $5,334 million, $6,332 million, and $7,221 million. According to the paired t-test, growth magnitudes are statistically significant (p-value = 0.4% and 0.5%). The growth rates for T1999–T2000 and T2000–T2001 are 18.7% and 14.0%. Note that the growth rate 18.7% during T1999–T2000 is drastically smaller than that of e-tailers(89.5%), but the rate (14%) during T2000–T2001 is similar to that of e-tailers (17.9%). It was not possible to collect the precise amount of online sales of C&M, but we can conjecture by comparing the ratio against that of pure e-tailers. The average revenue ratio of e-tailers over C&M was 4.03%, 6.44%, and 6.66% respectively. The ratios were small, although they were increasing. So we can conclude that the revenue growth rate of C&M was significantly smaller than pure e-tailers during T1999–T2000, but the rates converged during T2000–T2001.

H1c) The average revenue of B&M has significantly increased during T1999–T2001.

The average revenues of B&Min T1999, T2000, and T2001 were $2,004 million, $2,416 million, and $2,644 million. The growth rates for T1999–T2000 and T2000–T2001 are 20.55% and 9.4%, with the significance level of 7.6% and 0.0%. The growth rate of B&M (20.6%) in T1999–T2000 is slightly greater than that of C&M (18.7%), but the one (9.4%) in T2000–T2001 is smaller than that of C&M (14%). We can observe that the C&M grew faster than B&M since T2000, although it is premature to conclude whether this trend will continue in the future.

H1d) There was a significant difference of revenue between pure e-tailers and C&M (B&M) during T1999– T2001.

According to the t-test of revenue between pure click and C&M (B&M) for three points of time, the hypothesis that revenue of C&M(B&M) is bigger than that of pure retailers is accepted by 1% level of significance for all time points.

H1e) There was a significant difference of revenue between C&M and B&M during T1999–T2001.

According to the t-test of revenue between C&M and B&M for three time points, the hypothesis that C&M is bigger than B&M is accepted by 5% level of significance for all points of time. This implies that bigger retailers have joined the e-tailing business.

Net Income

The hypothesis is that the pure e-tailers have invested without positive incomes during the early stage of the business (Hand, 2002). We study when the net income turned profitable (if it did), and compare the levels of pure e-tailers, C&M, and B&M.

H2a) The average net income of pure e-tailers has significantly increased during T1999–T2001.

The net losses of pure e-tailers in T1999, T2000, and T2001 were $-149.4 million, $-189.9 million, and $-145.1 million. The average net income of pure e-tailers got worse in T2000, but got better in T2001 although the differences were not statistically significant. This weakly supports the conclusion that the pure e-tailers became healthier since T2001 although they were not profitable yet.

H2b) The average net income of C&M has significantly increased during T1999–T2001.

The average net incomes of C&M in T1999, T2000, and T2001 were $136.5 million, $184.8 million, and $184.2 million. The income has significantly increased during T1999–T2000 (35.88%), but slightly decreased during T2000–T2001 (-0.32%). This trend is opposite to pure e-tailers.

H2c) The average net income of B&M has significantly increased during T1999–T2001.

The average net incomes of B&M in T1999, T2000, and T2001 were $36.1 million, $55.7 million, and $46.9 million. The income significantly increased during T1999–T2000 (54.72%), but there was a big decrease during T2000–T2001 (-15.72%). This implies that in T2001 the income of B&M dropped bigger than C&M and pure e-tailers.

H2d) There was a significant difference of net income between groups during T1999–T2001.

Obviously, there was a significant difference of net income between pure e-tailer and "C&M and B&M." The average income level of C&M is significantly greater (less than 5% of error) than that of B&M for all time points. This implies that C&M have performed better than B&M not only in revenue but also in income and its ratio. Note that the income/revenue of C&M during T1999–T2001 are 2.56%, 2.92%, and 2.55%, which is greater than those of B&M, 1.80%, 2.30%, and 1.78%.

Stock Price

A firm value can be studied by observing the stock price and market capitalization (Trueman et al., 2002). We study whether the levels of falls between groups were significantly different.

H3a) The average stock price of pure e-tailers has dropped significantly during T1999–T2001.

The average stock price of pure e-tailers at T1999, T2001, and T2001 were $60.4, $19.3, and $9.7. According to the paired t-test between T1999 and T2000, and between T2000 and T2001, the average stock price of pure e-tailers dropped with the significance level of 5.3% and 2.0%. So the hypothesis H3a is accepted at 10% of significance. We can see that this drop is more severe than C&M and B&M.

H3b) The average stock price of C&M has significantly dropped during T1999–T2001.

The average stock prices of C&M at T1999, T2000, and T2001 were $25.2, $18.9, and $20.5. According to the paired t-test, the stock price dropped during T1999 and T2000 with the significance level of 0.0%, but rose during T2000 and T2001 with the significance level of 7%. The increase during T2000–T2001 is a substantial contrast with the severely fallen stock prices of pure e-tailers.

H3c) The average stock price of B&M has significantly dropped during T1999–T2001.

The stock price of B&M at T1999 ($20.8) dropped significantly (0.0%) to $15.4 at T2000, but rose (10.5% level of significance) to $16.9 at T2001. This pattern is similar to that of C&M. According to H3a, H3b, and H3c, we can conclude that the stock prices of pure click have consecutively dropped, but the stock prices of traditional retailers (both C&M and B&M) have bounced back during the T2000–T2001 periods.

H3d) Stock price levels between groups were significantly different during T1999–T2001.

The stock prices of pure e-tailers at T1999 were higher than those of C&M (B&M) at 17.3% (13.3%) level of significance. However, pure e-tailers became lower than C&M (B&M) at 2.5% (5.1%) level of significance at T2001. On the other hand, the hypothesis that stock prices of C&M were higher than B&M is accepted at 10% of significance for all points of time.

Market Capitalization

We investigate whether the significant fall of stock prices has influenced the firm value of e-tailiers.

H4a) The average market capitalization of pure e-tailers has significantly dropped during T1999–T2001.

The market capitalization of pure e-tailers at T1999, T2000, and T2001 were $8,716 million, $3,264 million, and $1,855 million. According to the paired t-test, the market capitalization dropped with 11.2% (11.9%) level of significance during T1999–T2000 (T2000–T2001). The sample size (6) for the test of T1999–T2000 is too small, but they were all listed companies available at T1999.

H4b) The average market capitalization of C&M has significantly dropped during T1999–T2001.

The market capitalization of C&M at T1999, T2000, and T2001 were $5,962 million, $6,217 million, and $6,742 million. The change between T1999 and T2000 was not significant, but was significant (0.7%) between T2000 and T2001. This implies the firm value of C&M grew significantly since T2000.

H4c) The average market capitalization of B&M has significantly dropped during T1999–T2001.

The market capitalization of B&M at T1999, T2000, and T2001 were $1,350 million, $1,015 million, and $1,265 million. According to the paired t-test, the market capitalization dropped significantly (2.4%) at T2000, but bounced up significantly (0.3%) at T2001.

H4d) There was a significant difference of market capitalization between groups during T1999–T2001.

The market capitalization of pure e-tailer was larger than C&M at T1999, but became much smaller at T2000 and T2001, even though the levels were not statistically significant. However, pure e-tailers had larger market capitalization than B&M for all time points although the differences were are not statistically significant at 5%.

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