How Web Traffic Can Enhance Your Investment Strategy

Nowadays, data science is used in almost every sector. And investment is no exception. However, most people tend to underestimate the importance of evaluating a company's digital performance before investing, which is unfortunate because it offers powerful market insights that can provide a valuable competitive advantage. We, at strike.market, incorporate alternative data to help our users improve their investment strategies.

Alternative data is a recognized metric for assessing the health and performance of a company. It gives extra signs that a firm is doing well or not, and may assist investors to validate an investment thesis, enhance their investment strategy, or even uncover new investment possibilities.

"Web traffic" is often the first term investors mention when assessing a company's reach. As such, it is a straightforward way to determine whether or not a company's products or services are popular, and on what scale.

What is Web Traffic?

Web traffic is simply described as the number of users visiting a website. Indeed, sites track incoming and outgoing traffic to identify which portions or pages of their site are popular and whether any patterns emerge, such as one page being read mostly by individuals from a given country. Sometimes referred to as "sessions," they represent one of the primary measures of an online business' success in attracting customers.

It also functions as a summarized assessment of the tactics that companies employ to attract visitors to their websites.

A Key Non-Financial Indicator

For a variety of reasons, web traffic is critical to a company's success. Indeed, the sales potential increases as the number of web visitors grows. . As a result, the number of visits becomes the number of opportunities for the company to generate more direct sales (for e-commerce companies like Amazon or Apple), registered users (like Netflix or Spotify), app downloads, or other sales channels. Building relationships and trust can help you sell a product or service, get new clients, and expand your business. Thus, increased web traffic is a measure of a company's growth.

One of the most important aspects for investors to consider when making investment decisions is a company's customer base. Web traffic, alongside social media engagement, not only provides insight into consumer behavior but also functions as a signal, allowing one to predict downward or upward trends – An investor may use them to evaluate the effectiveness of a company's digital initiatives and how it positions itself in its market.

For example, if traffic on a company's website stagnates or declines following a major product launch, investors with access to this data can forecast how this will affect the company's performance reports in the coming quarters and check to see if it has contingency plans in place.

Let’s take a look at a few examples.

Airbnb, Inc. ($ABNB)

Figure 1: Airbnb.com ($ABNB) Web Traffic (2021). Source: strike.market

Figure 2: Airbnb.com ($ABNB) top countries by source of visit (2021). Source: strike.market

The traffic on Airbnb.com in 2021 is depicted in Figure 1. From May to August, there has been an upward trend, which can be attributed to summer vacation; people are traveling and looking for lodging in greater numbers. Similarly, we can anticipate that the trend in the coming months will mirror that of 2021, resulting in poor performance.

Figure 2 is an underlying measure of the website’s traffic, the source of visits. Interestingly, most of the traffic originates from the United States, with the rest evenly distributed at very low levels. Hence, it may indicate that Airbnb's revenue is likely to be largely derived from the United States during this period.

Apple Inc. ($AAPL)

Figure 3: Apple.com ($AAPL) Web Traffic (2021). Source: strike.market

Looking at Apple's web traffic in 2021, we can witness a surge in September and October 2021. This strongly corroborates with the release of the iPhone 13 and new MacBook Pro, which were released on September 24 and October 25 respectively. Accordingly, it may reflect that the company's marketing strategy and therefore product sales have been successful. Furthermore, we can deduce that Apple's customers are most likely to visit the company's website during the company's major product launch periods.

Figure 4: Apple.com ($AAPL) top countries by source of visit (2021). Source: strike.market

Compared to Airbnb’s example above, Apple has a more balanced reach. With the United States accounting for 33,36%, better international results can be expected.

Macy’s, Inc. ($M)

Figure 5: Macys.com ($M) Web Traffic (2021). Source: strike.market

Let's look at a B2C company, Macy's ($M), as our final example. A significant increase in website traffic can be observed in November, which is likely attributed to Black Friday. We can therefore expect strong sales during the event, which will presumably be reflected in the company's next earnings report.

The Bottom Line

In the wake of the Covid-19 pandemic, customer buying behavior has changed dramatically. It has prompted most companies, especially the B2C ones, to rethink their sales channels, undertaking digital transformation strategies to generate new revenue streams and protect old ones - Direct investment in digital transformation efforts is predicted to reach $2.39 trillion by 2024.

Thus, in our view, alternative data plays a critical role and should be considered in investment strategies because the way a company is perceived is usually reflected in its stock price.