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Longer term, ATG’s share price and growth prospects, and that of other e-commerce companies, will be influenced by investors’ view of e-commerce as a whole. With the introduction of the Internet Retailer Online Retail Index there’s now an objective, publicly available way to measure Wall Street’s opinion of web retailing. l
How the Online Retail Index is calculated
The Internet Retailer Online Retail Index is equal weighted. Each of the 25 companies starts out representing 4% of the value of the index. If a company’s stock price goes up 25% in a given period that would add 1% (25% of 4%) to the value of the index as a whole.
This method, used by Dow Jones & Company for some specialized indexes, is better suited to the online retailing market than the two most popular methods of calculating stock indexes: by market capitalization, used by Standard & Poor’s, and stock price, the method employed for the Dow Jones Industrial Average.
Because eBay Inc. and Amazon.com Inc. represent 77% of the market value of the 25 companies in the index, an index weighted by market capitalization would largely reflect the fortunes of those two companies. Ups and downs of smaller companies would have little impact.
Weighting by price would under-value changes in stocks whose nominal price is low. The equal weighting method reflects small changes, if they represent a large percentage change in a stock price. For instance, when Art Technology Group Inc.’s stock went up 61 cents during the first week of February, that represented a 36% increase in value. Using the equal weighting method, that increase had as much impact on the overall index as would a 36% increase in Amazon’s stock price.
The 25 companies in the Internet Retailer Online Retail Index are: Akamai Technologies, Amazon.com Inc., American Greetings Corp., Art Technology Group Inc., Bidz.com Inc., Blue Nile Inc., CyberSource Corp., DemandTec Inc., Digital River Inc., Drugstore.com Inc., eBay Inc., GSI Commerce Inc., Interwoven Inc., Keynote Systems Inc., LivePerson Inc., Netflix Inc., NutriSystem Inc., Omniture Inc., Overstock.com Inc., PetMed Express Inc., RealNetworks Inc., Shutterfly Inc., Systemax Inc., United Online Inc. (owner of FTD.com) and VistaPrint Ltd.