Sentieo Use Case: Is The MGM Lion Ready to Pounce As Supreme Court Allows States to Legalize Sports Betting?

On Monday, the Supreme Court overturned PASPA (the Professional and Amateur Sports Protection Act that effectively banned commercial sports betting in most states), opening the door to legalizing the estimated $150 billion in illegal wagers on professional and amateur sports that Americans make every year. (New York Times)

We immediately jumped into Sentieo to see how various companies were taking the news. We pulled up a search for “PASPA” and its synonyms.

Mentions of PASPA in documents have certainly spiked in the last 3 months as companies have been eagerly awaiting the announcement:

We looked at the companies mentioning PASPA the most in their documents and found a few companies that will likely see positive impacts. They include:

    1. William Hill – bookmaker based in London that is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index
    2. Stars Group – Canadian gaming and online gambling company traded on Nasdaq and the Toronto Stock Exchange
    3. 888 Holdings – headquartered in Gibraltar, one of the world’s most popular online gaming operators & platform providers
    4. MGM Resorts International – American global hospitality and entertainment company
    5. Sportech PLC – online gambling and entertainment company headquartered in the United Kingdom,  traded on the London Stock Exchange under the symbol SPO

Here is the stock of Stars Group, with a large spike on May 14th:

All of these companies, except for MGM, had massive gains on Monday as the news hit the wire.

We dug a bit deeper into the MGM documents, and a May 10th Analyst day presentation caught our eye. Here’s a close-up:

On the call, MGM Chairman and CEO James Murren beat his chest on (correctly) predicting the outcome of the PASPA decision and tries to show that MGM Resorts’ primacy in the sports market and the overturning of PASPA would be a massive opportunity for the company. The accompanying slides from the presentation outlined the opportunity.

MGM was eagerly awaiting the PASPA announcement and is sure to already be pouncing on the opportunity to become even more of an “undisputed leader in sports.”

Unfortunately, for the company, the stock has not moved up accordingly since Friday. This is either a terrific investment opportunity, or a hope unrealized.

 

Dropbox vs. Box: The Story of Enterprise SaaS Multiples

The Dropbox IPO on March 23 was big news, as the market welcomed the newcomer with a 35% surge on its first day of trading. The stock has been hovering around $30 ever since then, almost double the initial IPO range of $16-18, making it one of the most valuable publicly-traded enterprise SaaS companies. With the company’s first earnings call coming this afternoon, we decided to take a closer look.

While the IPO was a success, there remains some skepticism about the valuation, especially when compared to Box, Dropbox’s closest peer. Both companies operate in the field of cloud storage and file hosting. It’s no coincidence that they even share similar names.

Let’s take a look first at valuation metrics. For enterprise SaaS companies that are still rapidly growing, traditional valuation ratios like PE and EV/EBITDA are not as relevant, so we looked at Enterprise Value to Sales multiples, along with key operating metrics across a broad range of enterprise SaaS companies, using Sentieo’s Comparable Analysis feature:

Sentieo

Dropbox’s EV/Sales multiple comes in at around 9.6x 2018 forecasted revenue. Box, meanwhile, operates at 5.8x revenue multiple, well below the 9.6x median for its peers. This valuation gap could be justified if Dropbox is growing faster or has a higher margin business. FY 2018 growth for Dropbox is forecasted at 20.5% vs. 27% for Box and Dropbox earns gross margins of 71.2% versus 73.3% for Box. However, Dropbox enjoys much higher operating margins with a 21.4% adjusted EBITDA margin compared to -3.2% for Box.

By digging deeper into the operating margins, we find that the difference between the two companies seems to come down to the approaches of their growth strategies. Dropbox has grown primarily through a highly efficient marketing function and self-serve model, while Box has grown through a traditional, and more expensive, enterprise sales model.

This leads us to a key metric used in the SaaS industry: the magic number. The magic number is a ratio used to measure how efficiently a company grows its annualized recurring revenue relative to sales and marketing expenses. Here is the formula:

formulaSource: thesaascfo.com

We can quickly find the numbers we need to calculate Dropbox’s magic number using Sentieo’s Document Search, and then export the table to Excel.

 eexcel

Here is the result:

result

As a rule of thumb, a SaaS magic number above 1 is good, and a number below .75 is concerning. Using the same process as we did for Dropbox above, we found that Box had a magic number of 0.38 in the most recent quarter, and 0.31 is the prior two quarters. This clues us in to why Box has such an abysmally low multiple for a SaaS company. But it doesn’t explain why Dropbox is priced at a premium to SaaS peers despite lower than average growth and margins.

We believe the secret lies in the Atlassian story. We first wrote about Atlassian right after the IPO two years ago in: No “High” in $TEAM: Why Atlassian Will 10X Or Get Acquired. Since then, the stock has been on a tear, almost doubling with quarter after quarter of revenue beats. Atlassian’s success has earned it by far the highest revenue multiple in its peer group at 16.9x 2018 sales. We believe this is primarily due to its efficient, self-serve, marketing-driven growth model and ability to upsell existing customers a broad suite of offerings. Atlassian had a magic number of 1.68 in the most recent fiscal quarter.

Dropbox’s IPO marketing materials make it clear that they want to be seen as the Atlassian of cloud storage, with many discussions of the benefits of the self-serve model, 500 million users, and individual accounts being upsold into enterprises.

Why Dropbox Is Overvalued vs. Box

This story hides some major issues with Dropbox. Their strategy for years has been to go after the consumer cloud storage market, which never made sense, as that market is highly competitive and has limited revenue potential. Box decided long ago to pivot to the enterprise, while Dropbox went through numerous failed acquisitions and internal initiatives, attempting to build products in everything from email to payments. They built a strong consumer brand in the process but ultimately decided to double down on enterprise. We think it’s too late.

The cloud storage and file hosting industry, including all the related services, doesn’t seem to be protected by a particularly wide moat. All of the major technology names are active in this field as well, including Amazon, Google, Microsoft, and Apple. All of these companies have the added advantage of pre-existing customer relationships. The main advantage Dropbox would need is the ability to provide differentiated services to enterprises. However, we haven’t seen evidence of Dropbox’s ability to effectively build differentiated enterprise products. As they are forced to expand their market, we believe they will face stiff competition that will make it more difficult to grow. On the other hand, the 500 million users may be the key to unlocking growth within enterprises that enterprise sales teams couldn’t effectively crack.

Meanwhile, Box’s stock has been on a tear over the past few weeks, especially after famous tech investor Chamath Palihapitiya gave a bullish presentation on the company at the Sohn Investment conference and the company has raised guidance.

We’ll be watching the language closely as Dropbox reports earnings today. The street seems to be expecting the company to beat estimates and raise guidance, leading to an increase in the stock as insiders come up on their lockout period. We don’t necessarily expect the company to disappoint in its first earnings call, but we’re bearish on the long-term outlook for the company.

“Boring Questions Are Not Cool” — A Sentiment Analysis of the TSLA Q1 2018 Earnings Call

Tesla’s earnings call yesterday was anything but boring, as Elon Musk very roughly dismissed analyst questions. We jumped into Sentieo to quickly find the Tesla transcript and dig into the details.

 

A.M. Sacconaghi, Senior Analyst at Sanford C. Bernstein & Co., asked Musk about gross margin end of year targets with regard to the Tesla Model 3. Tesla CFO Ahuja cited the weakening of the dollar and increased labor costs as Elon began to dismiss the question altogether.

See the specific dialogue below, which we highlighted and saved in Sentieo:

 

When Sacconaghi tries to dig deeper into Tesla’s plans to cut spending and where the company will be in terms of capital requirement, Musk brashly shuts him down:

 

(Note: Musk actually says, “Boring bonehead questions are not cool,” but our transcription service excluded the word “bonehead.”)

When responding to questions about the impact of news coverage on the recent Tesla crash fatality (during which the car was using “Autopilot”), Musk responds that these questions are “killing him,” calls press headlines “inflammatory,” and diverts back to an analyst from YouTube who only responds to him with clear, positive fanaticism.

 

We also decided to take a look at the transcript sentiment report for the call, with just another click within Sentieo. The chart below shows a huge uptick in analyst sentiment, but that’s really only because Musk chose to gift half of the call to this enthusiast from YouTube (Galileo Russell is a 2015 college grad who describes himself as “a finance geek whose two biggest current fascinations are Tesla and Bitcoin.”)

 

 

Lastly, we glanced at the comparison word clouds provided in the sentiment report for the call (below). We can see that analysts only wanted to talk Model 3, and management not at all. By contrast, in February, management spoke mostly about Model 3, but not at all in May. Clearly shown by this recent call, the focus has shifted to dodging the Model 3 discussion, whereas it was embraced previously.

Analyst vs. Management: Keyword Difference

This is another comparison cloud showing the major average difference between management and analyst keywords on the 2018-05-02 conference call.

 

Conference Calls Sequential Comparison Word Cloud

The following comparison word cloud shows the biggest changes in average keyword frequency between the 2018-05-02 conference call and the 2018-02-07 conference call for TSLA.*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Musk certainly seems to be feeling the heat under analyst scrutiny. We will see what next quarter brings and if Tesla is able to meet the goals he suggests.

Earnings Guide Part 2 : Using Sentieo’s Alternative Data to Predict This Week’s Earnings Announcements

Note: The content of this post references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

With earnings season continuing this week, the Sentieo team has been making their predictions about earnings using alternative data from Sentieo Mosaic. Last earnings season, the team accurately predicted the Netflix, Snapchat, Twitter, Skechers, Grubhub, Trupanion, and Hubspot beats.

Our Methodology: Why Does This Data Predict Earnings?

In the graphs below, we are presenting Quarterly YoY growth in Google Trends, Website Visits (Alexa Panel), and Twitter Mentions. In all cases, we have compared the data against quarterly revenue growth. Alternative datasets like these are offered in the Sentieo platform and can provide an edge in analyzing consumer-facing businesses, as they often have a high correlation with revenue growth and are available ahead of traditional financial metrics for the period. As consumer behavior shifts more and more towards digital, indicators like these have become more predictive of tech and consumer company results. Below each chart is a link to the interactive version of the graph.

Here’s what we’re thinking for Floor & Decor:

 

FND – Floor & Decor Holdings (Call on Thursday, May 3, 2018)

 

Floor & Decor Holdings is a leading specialty retailer in the hard surface flooring market, selling tile, wood, and other accessories at low prices. The company was founded in 2000 and is headquartered in Atlanta.

We used Sentieo Mosaic to analyze alternative data for the brand, plotting it in the chart below. The chart shows that Google Trends (green line) and Alexa Website Visits (red line) have historically correlated with FND’s revenue growth; both datasets caught major revenue growth inflections in early and late 2017. For Q1 2018, Google Trends decelerated, but has leveled off more recently, while Alexa data has moved sideways in the face of an expected revenue deceleration from analyst estimates.

View Interactive Chart: http://snt.io/VW5jpdqoc

 

The Google Trends data below shows that business is growing nicely for FND. The top blue line represents Google Trends data for 2018, and demonstrates that FND is hitting new heights this year.

 

FND is a high multiple stock and has moved up a lot since last earnings, suggesting that the bar is high. FND looks like a likely beat this quarter, but if the company misses estimates, expect the stock to go down.

sentiment

Introducing Sentieo’s Game-Changing Transcript Sentiment and Linguistic Analysis Features

Over the last year, the Sentieo team has been investing heavily in NLP & data science. We were very excited to release the Sentieo’s Transcript Intelligence Report, which is the first of many features built on a powerful new technology that lets us dissect documents and help you find insight.

There is signifcant amount of academic research that supports the idea that changes in sentiment among those in company management, as well as those working as analysts, do indeed have some relationship with stock returns.

Management is typically a negative predictor of stock returns. When management seems overly excited about the future, this may indicate that the stock will underperform. (See “Manager Sentiment and Stock Returns,” Journal of Financial Economics). On the other hand, when investor sentiment is low, subsequent returns are relatively high on a subset of stocks (high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks), consistent with an initial underpricing of these stocks. (See “Investor Sentiment in the Stock Market,” Journal of Economic Perspectives).

Our Transcript Intelligence Report provides automatic analysis on how sentiment and keywords for a given company have changed across quarters. The analysis easily splits out Management Sentiment vs. Analyst Sentiment. Let’s use Netflix as our example.

First, we open up Sentieo Document Search and search for Netflix transcripts. We choose a transcript in the left hand navigation, and see a “View Linguistic Intelligence Report” button at the top of the document in the right hand pane.

sentiment

 

 

We’re taken to the full Transcript Analysis page, and can now dive into the analysis!

sentiment

 

Sentiment Scores

Sentiment scores are generated by tagging each word in the document as positive, negative, or neutral using a dictionary designed for financial documents and applying a formula to generate a score for each section. The formula for sentiment is below:

The number (typically a decimal value below 0.1) is a percentage that should be considered on a relative basis, rather than absolute.

Management Sentiment

The following chart shows sentiment for Management commentary and Q&A answers on eight quarters of earnings calls. Sentiment is calculated as positive word % of total words – negative word % of total words.

management

 

 

 

Analyst Sentiment

The following chart shows sentiment for Analysts from the Q&A section of eight quarters of earnings calls. Sentiment is calculated as positive word % of total words – negative word % of total words.

 

 

 

Management-Analyst Sentiment Spread

The following chart shows the historical spread between Management and Analyst sentiment.

The spread between the two would suggest divergences in sentiment. For example, if the spread turned negative, then it is possible that management has turned less bullish while analysts have remained bullish, thereby signaling the potential for management to disappoint in future periods.

 

 

 

Conference Calls Sequential Comparison Word Cloud

The comparison word cloud shows the biggest changes in average keyword frequency between the 2018-04-16 conference call and the 2018-01-22 conference call for NFLX.*

 

 

 

 

Analyst vs Management: Keyword Differences

This is another comparison cloud showing the major average differences between management and analyst keywords on the 2018-04-16 conference call.

 

Management Top 15 Keywords

This table shows the top 15 keywords by frequency referenced in the past eight quarters of earnings calls. This provides a visual view at a glance into what is being discussed on the earnings calls over time.

 

 

 

Analysts Top 15 Keywords

 

 

 

Sign up for a free trial of Sentieo to get the sentiment report for Netflix and any other ticker you follow.

data storage Sentieo

Storage Wars: Security Concerns Generate Interest In AI On-Premise Storage Solutions Like PureStorage (PSTG)

Note: The content of this post references an opinion and / or is presented for product demonstration purposes. It is provided for information purposes only. It does not constitute, nor is it intended to be investment advice. Seek a duly licensed professional for investment advice.

AI (artificial intelligence) was certainly the buzzword of this past last year, influencing the conversations of most tech companies and also taking up increasing mindshare for Fortune 500 leaders across all industries.

In fact, we recently used Sentieo to take a look at mentions of AI in earnings call transcripts, and the number of mentions is growing exponentially. Here’s a snapshot from our recent Sentiment Analysis Quarterly Report:

 

ai

 

(For a full analysis of AI and other top keywords, download the full report here).

Companies looking to incorporate AI and machine learning into all aspects of their businesses also need to incorporate AI into their data storage systems. Currently, the top leaders in AI cloud storage services are: Amazon Web Services (AWS), Microsoft’s Azure, Google Cloud Platform (GCP), and IBM’s IBM Cloud and Watson. However, as data security and compliance become increasing concerns (especially in data security sensitive businesses like Financial Services and Healthcare), many companies are turning away from the cloud and looking towards on-premise data storage solutions to increase their privacy and control.

Jumping off from its recent partnership with Nvidia, PureStorage has created one of the first on-premise, AI-enabled solutions to hit the marketplace. For companies that don’t want to host data in the cloud (i.e. on-premise), there are no options outside of this new PSTG and NVDA offering. They may also be able to capitalize on “sole source” contracts with government institutions (circumventing the competitive bid process). These are 5-15M storage contacts with DoD, NASA, etc.

We took a look at PureStorage (PSTG) through the lens of Sentieo’s Mosaic tool, which plots alternative data that includes Google Trends, Alexa Website Data, and Twitter mentions. Alternative datasets like these can provide an edge in analyzing consumer-facing businesses, as they often have a high correlation with revenue growth and are available ahead of traditional financial metrics for the period. As consumer behavior shifts more and more towards digital, indicators like these have become more predictive of tech and consumer company results.

pure storage

What we see above is that Google Trends (green line), Twitter mentions (blue line), and Alexa website visits (red line) are all trending up, very likely due to the announcement of this highly AI-optimized solution born of PureStorage’s partnership with Nvidia. While indicators for PureStorage are ticking up, we don’t necessarily expect this to impact this quarter’s earnings. However, we do expect higher guidance for the next few quarters as PSTG rides the AI wave until other on-premise solutions catch up.

We’ll be keeping our eye on PSTG until its earnings call in late May, but based on the alternative data we’ve seen, we like its prospects for growth.

Sentieo Earnings Guide: Using Sentieo’s Alternative Data to Predict This Week’s Earnings Announcements

Note: The content of this post references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

With earnings season starting this week, the Sentieo team has been making their predictions about earnings using alternative data from Sentieo Mosaic. Last earnings season, the team accurately predicted the Netflix, Snapchat, Twitter, Skechers, Grubhub, Trupanion, and Hubspot beats.

Our Methodology: Why Does This Data Predict Earnings?

In the graphs below, we are presenting Quarterly YoY growth in Google Trends, Website Visits (Alexa Panel), and Twitter Mentions. In all cases, we have compared the data against quarterly revenue growth. Alternative datasets like these are offered in the Sentieo platform and can provide an edge in analyzing consumer-facing businesses, as they often have a high correlation with revenue growth and are available ahead of traditional financial metrics for the period. As consumer behavior shifts more and more towards digital, indicators like these have become more predictive of tech and consumer company results. Below each chart is a link to the interactive version of the graph.

Here’s what we’re thinking for upcoming calls:

SKX – Skechers (Thursday April 19th, After-Market)

We took a look at the international lifestyle and footwear brand Skechers last season, and predicted a beat. Currently, consensus is calling for $SKX YoY Revenue Growth to decelerate from 27% in Q4 to 12% for Q1 (dotted black line below). Google Trends data (green line), which has shown a great historical correlation to revenue growth, is actually accelerating for Q1 and suggests a revenue beat. Alexa Panel Website Visits (red line) also showed an acceleration during Q1.

http://snt.io/nT54NKK7U

Last quarter, SKX posted a huge beat on international wholesale revenues, which we called correctly. The blue line below represents $SKX’s International Google Trends, which showed a large Q4 acceleration. (Zoom in on the area inside the red box). Consensus was expecting a wholesale revenue growth deceleration to 23% (pink), but ended up reporting a huge beat of 40.1% growth (black) — just as the Google Trends data predicted.

http://snt.io/qG54RU4gM

This time around, we find ourselves in a similar situation. Consensus is calling for a large wholesale revenue growth deceleration (black line below), but the International Google Trends (blue line) still shows a very high growth rate, suggesting consensus is too low here.

http://snt.io/TQ54Rj4cF

netflix earnings

NFLX Crushes Subscriber Growth Estimates Again and Continues Focus On International Content

Netflix earnings announcements have proved to be the gift that keeps on giving as they continually smash already high estimates for subscriber growth — both domestically and in important international markets  — and the company pursues its quest to take over the world of streaming video entertainment. The streaming service added 5.46 million international subscribers and 1.96 U.S. subscribers on consensus estimates of 4.9 and 1.45 respectively.

We analyzed the call using an earnings transcript sentiment report from Sentieo (get the full report here). As in previous earnings calls, Netflix management discussed its continuing focus on original international content throughout yesterday’s earnings call, particularly mentioning Brazil (one of the important BRIC markets for large scale subscriber growth).

The report also provided the top keywords that have come up in the Netflix transcripts historically, which you can see below:

Transcript sentiment netflix
Top Keywords – Netflix Transcript

With mentions of “Brazilian” and “Portuguese,”  it was easy to guess Netflix’s future content plans. This is also Netflix’s first discussion of M&A in a long time, which is significant for a company that has not historically been acquisitive. They’ve also discussed key original content across different international markets: Dark (Germany), Casa De Papel (Spain) and Luke Cage (US).

To pull your own Transcript Sentiment reports for Netflix and any other ticker, sign up for a free trial of Sentieo here.

crypto interest rates Sentieo

From Crypto to Interest Rates: A Sentiment Analysis of Q1 2018 Earnings Calls

Today we’ve published our second Sentiment Analysis Report, which summarizes last quarter’s top keyword searches and provides detailed sentiment analysis across all industries. We used Sentieo’s brand new Transcript Sentiment Analysis feature to analyze earnings call transcripts and discover which topics companies discussed the most last quarter, versus the same quarter in 2017. (See our previous report here).

We also compared the sentiment of management and analyst sections of transcripts, and graphed these data points so you can easily see trends or discrepancies between the two. We publish these reports every quarter, so you can stay updated on information that could impact your investment decisions this year. Here are some interesting themes that came up in our research:

 

Sentiment Analysis

Management versus investor sentiment is diverging.

Our sentiment analysis on transcripts shows that a decoupling is taking hold between the language from company management and market participants. Management continues to be upbeat during earning calls and presentations, while sell-side analysts and investors are taking a more cautious stance. To learn more, download the full, free report.

 

Keyword Mentions

Two substantial highlights from the various themes we cover in this report are related to cryptocurrency and Trump.

While mentions of crypto have continued to ramp up, two companies in particular had a surge in references: IBM and Overstock.com.

IBM, with its Watson program and early involvement in the emerging fintech scene, is a recurring leader in the category. What’s new is that as concepts are maturing, bigger and more influential ecosystem players are now making moves: IBM recently revealed that it has been meeting with executives from commodities trading platforms, large corporations, and perhaps most importantly, central banks, to explore cryptocurrencies and blockchain in their operating models. (CoinDesk)

Overstock.com also made the headlines as possibly the first $1bn+ listed company dipping into crypto funding with an ICO (Initial Coin Offering). The stock fell sharply year to date (-40%), in part in reaction to the Securities and Exchange Commission starting an investigation on Overstock.com’s subsidiary that did the ICO. (Investopedia)

With this report, we are starting down the path of quantifying linguistic data. This report is a real use case of the exciting new features we recently released, like our Transcript Sentiment Report function, which is part of Sentieo Document Search.

Below is a sneak peek of the report: a sample page about the information technology sector.

To learn more about the companies, industries, and regions where crypto and other themes are being most discussed, download the full report, which covers this sector and many more. To find out more about how to run your own sentiment analysis with Sentieo, sign up here for a free trial.

 

Sentieo Announces $6M in First Institutional Round of Funding Led by Clocktower Ventures and Long Focus Capital

SAN FRANCISCO, March 27, 2018 – Sentieo, the next-generation financial research platform, today announced $6 million in funding led by Clocktower Ventures and Long Focus Capital. They are joined by angel investors including former Thomson Financial CEO David Flaschen, StockTwits Founder Howard Lindzon, Adobe CPO Scott Belsky, Moat President Aniq Rahman, and several top executives from leading investment managers. The funding follows a year of exponential growth for Sentieo, where the company tripled its client base and more than doubled its employee count. Building on this momentum, Sentieo will use the new capital to expand its platform offerings and accelerate global growth.

“As former financial analysts ourselves, Sentieo was born out of a very personal need for better tools to aid investment decision-making and Alpha generation,” said Alap Shah, CEO and cofounder of Sentieo.

“We applied our own experience to create a unique, multidimensional solution that provides clients with the powerful and intuitive tools that they need. This latest round of funding positions Sentieo to continue building out the platform, while further accelerating growth.”

Read the full press release here.