Introducing Sentieo’s New Document Search User Interface

Sentieo users are now able to try the beta release of our brand new Document Search user interface (UI). While it may seem familiar, the UI has been rebuilt using modern tech such as React. This new build enables significantly less memory consumption and greater responsiveness across the board. Plus, we’ve extended Sentieo’s sentiment and natural language processing capabilities to include a host of new AI-powered features detailed here.

AI-Powered Features

 

Smart Summary

With Sentieo’s new, ML-driven transcript Smart Summary, we enable analysts to pick up the important information across multiple classifications, such as guidance and KPIs.

To trigger Smart Summary, users can simply click the “brain” icon on any transcript. To learn more about Smart Summary, read this post.

 

 

Query Autocomplete

Our data science team has built an algorithm to identify key terms and topics for all companies within our database. Similar to a Google search, when a user starts typing inside of the query box, Sentieo will automatically populate suggested terms for you based on actual terms used by the company. This makes it much easier to find exactly the keywords you are looking for. Autocomplete intelligently populates based on which tickers and watchlists you have selected in the ticker box.

 

Suggested Synonyms

We are very excited to announce a giant leap forward for our Synonyms system. We have been using an NLP + machine learning-based algorithm for the last couple years to help us internally define and expand our deep synonym library. We are now very excited to open up that system to Sentieo users with our new Suggested Synonyms feature.

Using Suggested Synonyms, Sentieo is able to parse your query and automatically suggest possible synonyms to expand your search. While all of these synonyms may not be pertinent to your search, the function lets you quickly decide which you would like to add to your search. Just click the suggested synonym and it will automatically be added to your search query:

General Document Search Improvements

The Sources Selector

When we looked at usage analytics, we realized that the Document Type filter was the most used filter by a large margin. To make this filter more accessible and easier to use, we’ve made it a part of the main search interface. Additionally, we have renamed the filter to “Sources” to more accurately represent the functionality.

We have also added a quick “only” selector to the right of each source that lets users quickly focus on a single source. 

Additionally, click the > icon at the far right to load up the more granular filters:

All additional filtering is now available with the Filter Button:

 

Configure and Control Your Results Pane

We’ve added the ability for users to easily resize the results panel. Simply drag the divider or use the maximize/minimize button. As you expand, the application will automatically switch to a table view when enough space is present. 

While in the table view, you can also control what columns are visible. Currently, the list of options is limited but the Sentieo team will be adding to this over the coming months. 

For smaller screens, we’ve also added the option to toggle between split pane and results-only views.

 

Company Summary

If you run a search with a ticker but without a query, the Sentieo initial results page shows you all company documents, as well as a company summary and share price performance. We have taken some key metrics and links out of our EDT Summary and provided them within Document Search. Additionally, users can see a historical stock price graph in the company summary.

 

Improved Document Viewer

We’ve made serious upgrades to our Document Viewer as well. You will notice faster load times for documents across the board. Additionally, we have relocated the highlights and the index panel to the right of the document.

We have also relocated the Redlining function to the top right of the document viewer.

 

To try the new Document Search interface for yourself, please log in, or get in touch!

 

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Disrupting Transcripts: Applying Sentieo’s Smart Summary During Earnings Season

After last week’s release of Sentieo’s machine learning-based Smart Summary for transcriptsthis week we will be highlighting exactly how to use this powerful new feature to ensure that you don’t miss important information this earnings season, and that you also save time.  

The Smart Summary tool classifies a document’s language based on several categories such as Guidance, KPIs, and company-specific key terms (like product names) into a convenient, time-saving format. Further, it applies an NLP sentiment filter to highlight positive and negative language. 

Smart Summary is the latest machine learning and natural language processing-based tool released by Sentieo this year. We’ve also released a dynamic synonym suggestions feature for Document Search based on our own, internal synonym search tool. Additionally, we added company-specific autocomplete suggestions to our search. And earlier this year, we rolled out Table Explorer, a flexible and auditable tool that identifies, chains and visualizes tables in SEC filings. 

During the next few days, we will be selecting and publishing our highlights from current transcripts to show how effective Smart Summary can be in your research workflow. (Stay tuned).

For example, if we look at the transcript from the Goldman Sachs call last week (below), we can pick up essential corporate and macro information (color-coded as needed), under the Financials and KPIs classification. Scrolling down in the Smart Summary, we see record assets under supervision: good news in green, versus slower Chinese GDP growth in red, a couple of paragraphs down. The full context is right there as well. 

In addition to viewing by Classification group, users can quickly scroll through all positive and negative highlights, regardless of Classification. 

In the Key Terms field, we catch up on Marcus, Goldman’s growing consumer banking franchise. We can see a mix of positive and neutral statements. 

For the next few days, the blog will be highlighting exactly how we’re applying this powerful new functionality. To try it yourself, please get in touch

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Guide to Using Alternative Data In Equity Research to Deliver Alpha: The 13 Stock Picks for H2 2019

Alternative data has become a mainstream source of data for investment managers, with up to 50% of funds now using it as a part of their research process. The question of how to get value from alternative data is no longer about access to the data sets; there are hundreds of vendors offering alternative datasets or services. Rather, it is a question of how to make that data useful to every equity analyst driving investment strategy.

Download the Picks Whitepaper now.

Large funds have made multi-million dollar investments in data science teams and big data infrastructures in an attempt to win an alternative data arms race that is predominantly driven on the hope of finding the needle in the haystack, big bet investment. However, with our 13 Alternative Data Stock Picks, we have proven that the most successful approach to alternative data is to directly embed it into the core research workflow for analysts, effectively democratizing alternative data.

This guide outlines how we used the Sentieo platform to pick our initial 11 stocks from the first half of the year, the performance of these stocks, and our Alternative Data Picks for the second half of 2019.

How Sentieo Makes the Alternative Data Stock Picks

For both the original Sentieo 11 and the new Sentieo 13 picks, we used the same methodology:

We started with the Sentieo Mosaic screen, where we looked for:

  •     A high correlation between the alternative data composite and revenue growth and/or KPI
  •     Large acceleration in the alternative data (our proxy for end-user demand) versus the consensus expectations

These correlations and significant changes in trends are what drive analyst usage of Alternative Data.

Usage of Alternative Data in Mosaic is easy to customize and is completely transparent: users can see basket weights, as well as data set performance for different time frames.

Our next step is to marry the broad screen results with our team’s 60+ years of collective fundamental, qualitative investing experience. Sentieo augments human decision-making: the charts and the stats will not give you the “why.” We do not adhere to specific investment style boxes, but we do look for revenue growth as the single largest driver of long-term results. No business ever shrank its way to greatness.

The ideal picks have strong revenue growth because they:

  •     Operate in high-growth industries, supported by long-term secular megatrends
  •     Are the leaders in their respective industries
  •     Tend to be underpriced relative to their growth rates

As a result, this set of long ideas has relatively high near-term P/E. We also looked at earnings momentum through a combination of the classic earnings upwards revision, plus our alternative data Mosaic index. Most alternative data sets do come from consumer-generated data, and most of our picks are in these two broad groups. As more and more consumer behaviors shift to digital, we expect to see the alternative data sets become more and more predictive.

Sentieo 13 H2 2019 Alternative Data Picks

Our latest set of picks is based on exactly the same methodology as before, but we have expanded our focus a little wider. Note: These are not stock recommendations, and we are sharing them to show the power of the Sentieo platform in bringing together the power of a complete financial research platform with both traditional and alternative datasets.

1) SNAP

Interactive chart

 

2) PLNT

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3) TWTR

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4) CROX


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To see Sentieo’s 9 other picks, download the full whitepaper here.

We’ll also be discussing all the picks and how we made them during our upcoming live webinar, featuring Sentieo’s CEO, Alap Shah. Register here.

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Disclaimer

The content of this report references opinions and is presented for product demonstration purposes only. It does not constitute, nor is it intended to be, investment advice or recommendations. Readers should assume that Sentieo staff members hold direct and/or derivative positions in all securities mentioned, and may transact in any and all of these securities, at any time, without notice. Seek a duly licensed investment professional for investment advice. Sentieo is not registered in any investment advisory capacity in any jurisdiction globally.

The 7 Habits of Highly Effective Analysts: The First 3 Habits

Why Make Effectiveness A Habit?

At Sentieo, we care about helping equity analysts become more successful. It is core to our mission as a company. While we have broadened our purview to finance and general knowledge professionals, we still have buy-side in our DNA. Our CEO and co-founder, as well as many of our executives and product owners, were analysts in their previous lives.

The mountain of data that analysts have to process to find nuggets of unique truths is growing more massive each year, leading to information overload. In the face of these challenges, we still believe there is a role for human analysts, augmented with better technology and process to help them fight off those challenges. Thus, we’ve updated our most popular whitepaper, The 7 Habits of Highly Effective Analysts. Read the preview below, or download the whole thing!

Looking Beyond The Echo Chamber For Ideas

The world of finance tends to be an enormous echo chamber where even ostensibly intelligent participants can get caught up in manias and panics of groupthink: how much of your communication is with fellow buy-siders versus outsiders? We actually found it more instructive to steal ideas from outside of finance.  

All three of the above have similar constraints on resources and relevance to the ultimate research output. Of course, we don’t think there is any better authority on general personal effectiveness than the original Franklin Covey book (The 7 Habits of Highly Effective People), which also obviously served as an inspiration for this paper.

 

Three Individual Equity Analyst Habits:

 

1) Be Proactive: Optimize Your Coverage Universe and Expand Your Circle of Influence 

You only have so many hours in a day. Valentine (book referenced above) and most major hedge funds recommend covering up to 40-50 stocks at most. If you can’t find a good idea — long or short — in those, you are doing something wrong. If you are trading hundreds of stocks a year, you are going too broad to have any edge over quant-driven processes (and probably paying too much in commissions). The only way humans will have a sustainable and permanent advantage in investing is by doing deep fundamental research. Fortunately, we at Sentieo are continuously working on building technology to augment, not replace, the human. The universe of thousands of stocks can be hard to narrow down. Luckily, Sentieo’s platform has a built-in powerful screener with thousands of categories just for that purpose. 

Use Sentieo’s Screener to filter down to the companies you care about.

Once they have a sensibly defined investment universe, effective equity analysis are ready to go deep. Buy side analysts have a wealth of broker research resources at their fingertips, but often drown in the floods of daily push emails. Your inbox is valuable real estate; the most effective Equity Analysts access information on a “pull” basis—on demand, instead of having their time and attention demanded by outside parties.

Analysts should approach search with a specific intent in mind, and gather as many relevant facts as possible. Sentieo enables this by bringing users access to the full spectrum of Broker Research inside our Document Search platform.

Drill down by document type (or even document section) to only get the information you want. 

 

2) Begin With the End in Mind: Don’t Miss the Macro for the Micro, or the Structural for the Near-Term

All too often, analysts get worked up about basis point moves and minor catalysts when they should be focused on the tectonic shifts under their feet. Think beyond the movements of macro model inputs like commodity costs and currency fluctuations. The shifts from major global trends, ranging from “Software Eating the World” to regulatory and political shifts can serve as either incredible headwinds or tailwinds to investment theses that can far outweigh any modeling considerations for the next fiscal year.

Models are only as good as the assumptions going into them, and no amount of Excel wizardry will help if, for example, you try to buy the dip in global mining stocks ahead of a Chinese slowdown, or you seek value in consumer packaged goods while well-funded startups (instead of stale brands) are gaining ground in every category.

Although one should constrain their coverage universe (see Habit 1), no stock is an island. Our platform allows effective equity analysts to quickly get a read across adjacent sectors, to stay informed through plotting market data and document mentions. 

Sentieo’s Search Summary Analytics give you insight into the most keyword mentions by Company, Document Type, Sector, and Region

 

3) Put First Things First: Maintain A Catalyst Calendar and Do The Work Well Ahead

Stocks often run ahead of earnings. It is not an infrequent occurrence for a company to beat, but trade down. This cues puzzled commentary from the Street about the “inexplicable” reaction, while a 30% pre-earnings run-up was ignored. Funds need to be sized up at the start of these pre-event moves, not just the day or week beforehand. The proactive analyst with this end goal in mind should maintain a priority list that includes a catalyst calendar, and should ideally organize their work around the profit potential.

Key catalysts to track include earnings announcements, product launches, and transactions. Sentieo’s Calendar can feed in from a user’s watchlist, and it makes the forward calendar plain as day:

Track your tickers using an earnings calendar in Sentieo, on both desktop and mobile.

These are just 3 of the 7 Habits of Highly Effective Analysts. To read about all 7, download the full white paper. 

 

Here is What Corporate America Is Doing for Pride Month

Sentieo values diversity and believes that diverse teams make innovation possible. (We are hiring!). One of the exercises that we are doing for Pride Month is taking a look at how Corporate America is celebrating, by using our industry-leading Document Search technology. Check out our findings below.

Pride Month Is Growing! 

Mentions of “Pride Month” in US corporate press releases for public companies were practically non-existent in 2012, but in 2018 and 2019, we see about 20 press releases. (Interactive chart)

Who Were The “Early Adopters?”

Our search results show that Hyatt, Marriott, PNC Bank, Comcast, Macy’s, Southwest Airlines, The Knot, and CBS were talking about pride in 2012-2013.

 

What Caught Our Eye In 2019?

Chipotle is rolling out limited edition gear to benefit The Trevor Project (a suicide prevention organization). (See full press release here).

 

Baidu now has a special Pride edition for its Facemoji keyboard app. (See full press release here).

 

United Airlines is hosting its first ever Drag Brunch at Newark Airport. (See full press release here).

 

UGG (part of Deckers Brands) unveiled a footwear collection to benefit Lady Gaga’s Born This Way foundation. (See full press release here).

 

Zillow compiled data on housing cost premia in many “gayborhoods” nationally. (See full press release here).

Lady Gaga is hosting a first-ever concert at the Apollo for SirusXM+Pandora. Sorry, invite-only. (See full press release here).

We’re excited to celebrate Pride this month, while also keeping an eye on trends using DocSearch.

If you would like to learn more about search best practices, please join our webinar on Thursday!

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Missed Our “Ask Us Anything” Webinar? Here Are Your Most Common Questions About Sentieo’s Table Explorer and Plotter

This month at Sentieo’s New York office, our Head of Research, Nick Mazing, hosted a two-hour “Ask Us Anything” live webinar. Nick answered questions from Sentieo’s current and prospective users, covering the many functionalities of the platform. In this post, we will share a few FAQ’s about Sentieo’s Table Explorer and Plotter features.

Table Explorer FAQs

How do I save time when handling 6, 9, and 12-month cumulative reported numbers (such as Cash Flow Statements) using Table Explorer’s “Quarterize” function?

Unsurprisingly, this was the first question that came in. Table Explorer is a very popular feature that we released earlier this year. It identifies and chains similar tables for fast collection of “as reported” financials in an easily auditable and workable format. One of the challenges with using reported financials is adjusting cumulative cash flow line items; it is not hard, but it takes time. Here, we show how to do this in literally two clicks. Add a Q4 column and Quarterize.

How do I analyze reported KPIs?

Table Explorer will chain all “similar” tables in the filings going back years. So as long as the company has been reporting KPIs in a somewhat consistent format, Sentieo Table Explorer will chain them going back 10+ years. You can then export the tables to Plotter and add other data series (ie. rolling valuation, or alternative data such as search trends, or macro indicators).

How do I explore an idea from macro to micro?

To answer this question, we started with a transcript search searching for wage inflation, identified the restaurant industry as an industry that talks a lot about wage inflation, showed the search statistics in Plotter, overlaid with a macro indicator. We then used the search statistics to identify The Cheesecake Factory as a company that talks about the topic a lot. So we located the labor expense line with one query that saved us time digging through filings and tables. Once there, we used Sentieo’s Table Explorer to chain that table going back for a few years. We quickly visualized the trends in labor expenses and in operating income, as a percentage of revenue, to get an idea of what is going on.

How do I use Table Explorer to chain and visualize line items and KPIs from reported financials?

We dig into Royal Caribbean (RCL) and visualize many reported expenses to get insights on what has been going on with the business. We utilize our easy switch to Common Size and YoY% growth for all line items to see the full picture.

Plotter FAQs

Can you show financials in Plotter?

Sentieo’s Plotter is our versatile data visualization tool. In addition to choosing from a wide menu of available data sets, users can also do a variety of calculations using these data sets. In this example, we pulled the past and estimated quarterly revenues for Home Depot and Lowe’s, and ran a correlation between these two data sets in three clicks.

Does Plotter integrate FRED macro data?

Our clients welcomed the recently expanded FRED macro data integration in Sentieo Plotter. We went over a quick example how to combine macro data with price data for a sector ETF.

How do I chart multiple datasets in Plotter?

Sentieo’s Plotter offers many data sets, from financials to macro series, to alternative data, to your own uploaded data sets. We show how to bring up KPIs in the tool for three casual dining stocks, and how to calculate a “mini-index” KPI average.

Missed the part of the webinar about DocSearch? Get updated here.

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The Chewy IPO: Digging For Treats In SEC Filings

PetSmart Inc.

The Year of the IPO continues! We wrote about the parallels between Pinterest and early Facebook, we did an extensive Slack S-1 read-through, and we highlighted what Uber and Lyft are saying about autonomous vehicles in their filings.

With a high-profile IPO like Chewy coming up, an analyst faces two challenges: since the company is a unique, fast-growing asset, the analyst has to triangulate possible valuation ranges for the offering as there are no direct comparable. Contrast this, for example, to a quick-serve restaurant chain seeking an IPO: there are tens of comparables to choose from. The second challenge is that the pre-IPO valuation work has to be done quickly so that the team can decide whether to pursue the idea further: the opportunity costs on time spent in dead ends in investment management can be extraordinarily large. Using Sentieo, we were able to pull trading data on active and delisted tickers, as well as transaction multiples from fairness opinions, in minutes, ready to be compared against the proposed IPO price range, and to be presented to the team.

After Chewy’s first IPO filing in late April (latest S-1/A here), we are looking at what we can learn about pet industry valuations — both from trading data and from what is buried deep in SEC filings — in the form of fairness opinions filed around M&A activity in the sector.

Chewy (CHWY) does not have direct US comparables. There are no other dominant online pet food or pet medicine specialists. There used to be two publicly traded “pure play” pet food companies: Blue Buffalo (old ticker: BUFF) and FreshPet (FRPT). FRPT still trades, while BUFF was taken over by General Mills.

FRPT pioneered fresh, refrigerated pet food that is delivered to stores and sold in branded coolers, in contrast to Chewy’s online model of shelf-stable food combined with a large subscription business. After a rocky post-IPO start, FRPT is in the middle of a successful turnaround, and the company is currently trading at around 6.5x EV/NTM Sales and at around 48x EV/NTM EBITDA. Interactive chart

FRPT EV/Sales and EV/EBITDA

BUFF, on the other hand, offers traditional, shelf-stable food. BUFF was acquired by General Mills last year, and was trading at 5.7x EV/NTM Sales and 23.1x EV/NTM EBITDA at takeover time. Interactive chart

BUFF EV/NTM Sales and EV/NTM EBITDA

Since the General Mills-Blue Buffalo transaction was likely cited in fairness opinions, we searched all Consumer Staples company filings for tables that contain “Blue Buffalo.” We found one right away, literally the first result: Pinnacle Foods’ filings around its takeout by ConAgra Brands (CAG) (Full document here). We see that there are three recent pet food transactions that are of relevance to our work on CHWY: BUFF taken out at 25.5x EV/LTM EBITDA, Ainsworth Pet Nutrition at 20.0x, and Big Heart Pet Brands at 15.1x.

Blue Buffalo

Going beyond food, we also took a look at the pet health players. There are three segments that we looked at: pet/animal pharmaceuticals, pet hospitals, and pet health insurance. There are US publicly traded companies in the pharmaceutical and the insurance space.

On the pharma side, we took a look at Idexx Laboratories (IDXX), Zoetis (ZTS), Elanco Animal Health (ELAN), and Phibro Animal Health (PAHC). We can see that the median animal pharma name is trading at 20.4x NTM EV/EBITDA.

Comparable Analysis

There is one US/Canadian pet health insurer trading publicly: Trupanion (TRUP). While pet insurance belongs in the property insurance category, TRUP has been trading more in line with software names, and less so with P&C insurers, which has resulted in a lot of short-seller activity, including published reports and an increased short position as a percent of float. Interactive chart

Trupanion (TRUP)

On the veterinary side, we searched through corporate filings for tables containing VCA (old ticker “WOOF”), a marquee $10 bn transaction. We found a detailed fairness opinion in the filings of Abaxis (ABAX), acquired by Zoetis (ZTS, mentioned above). We see that precedent transactions in the veterinary distribution and the veterinary hospital sectors have been done at 14.5x-15.0x LTM EBITDA multiples. See full filing.

VCA (old ticker “WOOF”)

Finally, we also know that Chewy is currently owned by physical pet retailer PetSmart (old ticker “PETM”). PetSmart itself was public, and was taken private in early 2015. We see that the comparables on file from that time look at physical retailer comparables to arrive at a median 9.7x LTM EBITDA. Full filing here.

Petsmart, Inc.

If you are interested in how Sentieo’s integrated research platform can make you and your team more productive, please get in touch with us.

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Did You Miss Our Last Webinar? Here Are Your Most Common Questions About DocSearch

Last week at Sentieo’s New York office, our Head of Research, Nick Mazing, hosted a two-hour “Ask Us Anything” live webinar.

Nick answered questions from Sentieo’s current and prospective users, covering the many functionalities of the platform. In this blog post, we will share a few Q&As about Sentieo’s Document Search feature.

How can you start with a macro topic (“China”) and quickly drill down to specifics (“Consumer Discretionary companies moving production to Vietnam”)?
Using Sentieo’s industry-leading document search, we showed how to run searches for specific documents, and how to be more efficient combining synonyms with proximity searches. We also showed the usefulness of Sentieo’s search analytics screen, where users can filter search results by industry or geography.

How do I find information about a specific irregular event (i.e., the government shutdown in 2013) in broker research reports?
We showed how to search for research reports specifically within a certain timeframe. We also looked at which industry had the most coverage around the event based on the top 10 companies that were listed in our search analytics summary.

How do I increase my productivity by saving my searches?
With saved searches, you can receive alerts when new search results hit. With Sentieo, you can save any type of search and choose exactly how you want to be notified. Nick reviewed one of the saved searches that he uses to stay on top of a topic he finds interesting.

How do I find valuable information hidden in the footnotes of tables in corporate filings?
We showed how to use the “IN:table+footnote” search functionality to uncover how a declining sales trend was actually worse due to the extra week in that fiscal year.

How about non-US filers?
Sentieo’s powerful Document Search works just as well with non-US filers. We took a quick look at the documents we have for LVMH, the French fashion conglomerate, and showed how our search functions work there, including our popular saved search alerts.

How do I create a watchlist to track my favorite tickers?
Building custom watchlists in Sentieo is one of the first steps that our users complete. We showed several ways to build watchlists, including a watchlist from Document Search results, for example, “all companies mentioning a certain term in the Risk Factors section of their 10-K’s.” The extensive level of customization for the alerts/notifications related to each watchlist can help you save hours of time.

How do I get free food? Free admission to events?
We used Sentieo’s Document Search to find free food! Our attendees now know about the free donuts coming up for National Donut Day on Friday, June 7th, 2019, at Dunkin’ Donuts, as well as many other current offers. These searches aren’t just for fun, though. We show you how to track retailer promotional intensity over the years using this type of search.

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Is buying Pinterest in 2019 like buying Facebook in 2012?

What is Pinterest?

Pinterest is a visual discovery and bookmarking tool. It has created a niche on its own: we see it alongside Twitter, Instagram, Snapchat and LinkedIn, in terms of having created a unique product with social aspects.

Pinterest allows users to collect and save images within categorized boards, similar to the way that Slack discussions are organized into topic-specific channels. (We reviewed the Slack IPO filing here).

Pinterest is considered “social” because it allows users to follow people or specific boards based on their interests, and this aspirational “pinning” is fun, easy, and sometimes addictive.

Pinterest is a unique advertising business: not only is there high intent (i.e. collecting ideas for a bathroom remodel), but its various ad types (i.e. carousel, ecommerce) are covertly placed within the rest of the pinned images. In addition to Pinterest’s ads being hard to avoid, the ads are routinely pinned by users, thus increasing their reach. (We haven’t found many other platforms where this occurs).

Pinterest is also expanding its ecommerce capabilities, including the discovery of products from photos taken by users.

In our view, Pinterest is a unique property in the early stages of monetization (esp. international), similar to where Facebook was after its IPO in 2012. Unlike Facebook, however, there are really no questions around the monetization potential. (Mobile was a big question for Facebook). We are very optimistic on Pinterest in the long term, in contrast to the large unknowns around AVs, as we discussed in our Uber and Lyft AV review).

 

Product Overview

Below is what the Pinterest homepage for the desktop application looks like for one of our team members. The content suggested for browsing is tailored to several existing boards. Also note the carousel ads from blue chip advertisers (Home Depot and Walmart).

Opening up a board (called Art Deco in this case), reveals the saved pins and invites the user to explore more content of the same kind algorithmically. Users can also search textually. We can also see that this board has 13 followers who will see any new content as it’s added.

Clicking on “More Ideas,” we see an invite to shop, follow similar boards, and an ad that we can pin to save in our board or click to visit.

Scrolling down, we see two more unobtrusive but highly relevant ads, fitting not just the theme but also the color scheme of the suggestions and the board.

Financial Review

After this brief product and navigation overview, let’s look at Pinterest’s post-IPO 424 (full document) and their Q1 results (10-Q here).

Pinterest IPOed about a month ago in April at $19 per share, then went up to $34 before easing into the mid-$20s after the Q1 results. (Interactive chart)

Notes from our read-through of Pinterest’s Form 424 filing:

Pinterest’s own business description is centered around inspiration and discovery.

Pinterest’s value proposition to advertisers in clear: 250 million MAUs and 80% of US moms.

 

Further, Pinterest hits consumers at different stages in the shopping journey:

 

Pinterest is naturally a high-intent environment that is a secular ad dollar share-taker:

 

The growth vectors that Pinterest is listing include:

  • on the consumer side, more shoppable products (similar to the recent Instagram ecommerce integrations)
  • more verticals (men can be pinners, too!)
  • more localized content
  • more commercial content to be “discovered”

On the advertiser side, the growth will come from better relevance, more ad products, and more native and third-party tools.

As we mentioned in our introduction, these are all currently existing monetization paths. Pinterest, in our view, has a very low technological risk.

Pinterest’s Risk Factors include a lot of the “usual” factors that we see in tech IPOs. We have highlighted the major ones, in our opinion:

Pinterest needs the network effects of people contributing and sharing content on the platform, it depends on search engine traffic, and there might be competition.

 

Further down in the document, we see examples of the dependence on search:

We also see the competition around visual and ecommerce:

In our view, external competition is really the main risk factor: Pinterest has the network effects and the visual search leadership, and digital advertising in its many forms was, is and will be a share-gainer regardless of the economic cycle.

We can see Facebook’s Instagram launching a competitor, similar to what happened with Stories and Snapchat. We do not see this succeeding easily. Pinterest is centered around topics (the way Slack channels or Twitter lists are), unlike the personality-driven Instagram product.

There is a bad precedent though: Snapchat was hit by Instagram’s launch of Stories: the company had to include this in its pre-IPO filing (below), and we saw its DAU growth dampen quickly, and flatline afterwards.  

Snapchat’s DAUs have been at 0% growth in the last two quarters, and is actually declining in North America and Europe.

 

And Snapchat’s stock never really recovered: it is down by about two-thirds from the post-IPO high and its NTM EV/Sales multiple (left axis) has compressed from over 26x to under 9x. (Interactive chart)

 

Back to Pinterest: the financials look great.

We see exactly what growth investors want to see: increasing revenues (2.5x over two years) AND narrowing losses (GAAP loss reduced by 2/3rds over the same period).

Pinterest’s operating metrics are also going in the right direction: we can see that US growth has naturally flatlined at around 82 million (this is already very well-penetrated), but international is 2x larger already, and growing very well.

 

Unlike the user metrics, revenue metrics are very heavily skewed to the US: this is where the largest opportunity lies with Pinterest. There is practically zero international revenue, and dominant US platforms have demonstrated, time and again, that international user monetization is very doable.

 

The picture is really stunning at the ARPU level: the US monetized at $1.59 to $3.16 per quarter in 2018, while international users monetized at $0.05 to $0.09 per quarter. International monetization is lower in Pinterest’s comps like Facebook and Twitter as well, but it is not non-existent like we see below.

 

Perhaps you saw the seasonal spikes in the charts above for US users: Pinterest’s quarterly metrics reveal that the company was actually profitable, on a GAAP basis no less, in both Q4 2017 and Q4 2018. This confirmed our initial feeling that Pinterest is very close to profitability.

 

Pinterest is led by its founder, and its management team has prior experience around “Big Tech.” The founder and several employees came from Google, Square, HP, and Microsoft. This is the type of professional background that we like to see.

 

The Board consists of venture capitalists, predictably, as well as people with online media backgrounds.

The governance is similar to that of other tech IPOs (ie. dual class shares). The pre-IPO shareholder composition is also typical of recent high-profile tech IPOs: founders, management and VCs.

 

Like we noted in our Slack post, companies are waiting for longer before IPOing: this results in multiple rounds of private financing (here up to Series H).  

 

Since Pinterest reported results recently, we also took a look at their Q1.

First, we saw that everything is going according to plan: more international markets are being monetized, and more features are being added to gain share with ad clients.

 

The financials also looked great: 54% revenue growth and 22% MAU growth, driven by 29% international MAU growth. MAU growth has been fairly steady in the last 4 quarters: 25%. 23%, 23%, 22%.

 

ARPU is also growing rapidly, both domestically and internationally:

 

Losses also improved as a percent of revenue:

 

However, the stock dropped as media reports indicated that the guidance for 2019 was light (along with the usual “how can they bomb their first quarter?”):

 

 

We are much more optimistic on the business in the intermediate and longer-term.

This slide below caught our eye in the earnings release deck. On a running four-quarter basis, Pinterest is monetizing in the low $3’s globally, and literally in the pennies for the international segment.

 

 

This really reminded us of another great advertising business that you might have head of: Facebook. In this 2012 deck, we can see that pre-IPO, in 2010, Facebook had similar US monetization numbers.

 

Facebook is now running US monetization at 10x — roughly the ARPUs from back then.

We see something similar with Twitter, but in 2016 (around the same number of MAUs- though this is not a great metric for Twitter and the company recently switched to mDAU, monetizable DAU). US ARPUs are also similar to what Pinterest is running now. Twitter’s US ARPU is now 3-4x these 2016 amounts.

 

We can see Pinterest monetizing at levels above Twitter — due to the high level of intent — and lower than Facebook, as Facebook has two large monetizable properties.

We can see that Pinterest is currently trading at around 15x EV/Sales on an NTM basis:

 

Facebook also spent a lot of time trading in the low teens on a EV/Sales basis:

 

What is different here is that, unlike Facebook’s “early years,” we know for a fact that mobile is monetizable, and we know that video is monetizable, so the business risks are much lower. It really is heavily about the management team executing and following the path that has already been established by others in the space.

We see a similar picture when we combine EV/NTM Sales for LinkedIn, Facebook, Twitter, Snapchat and Pinterest on the same scale: high multiples are not unusual in the early years. (Interactive chart link)

 

 

This is even more clear when we align the origins (trading start) for the EV/Sales chart above. (Interactive chart link)

 

Completely speculatively, we can see Facebook acquiring Pinterest: we have no special knowledge and we would guess that Facebook must have looked at doing this prior to the IPO.

But we know that Facebook is a very smart acquiror (Whatsapp and Instagram being Hall of Fame acquisitions), so it is entirely possible that Facebook (or Amazon) will step in if Pinterest starts gaining more traction. This is a similar situation to LinkedIn: it became the de-facto depository for global, white collar professional information, and it was acquired by Microsoft after a short stint as a public company. We also think that Twitter will be an acquisition target if the business continues its “Disney-fication”, a process we discussed when we listed it as one of our top 11 long ideas in January 2019.

To summarize our view, we see Pinterest as a unique advertising and potentially ecommerce property that has established a very attractive vertical, and is only now turning on the monetization “machine.” Valuation is not dissimilar to what we saw in early Facebook, but with substantially lower business risks: we know what works.

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Slack’s S-1: Our Read-Through and Analysis

Sentieo was an early adopter of Slack. As a global company with 170 employees across several offices and time zones, we immediately saw the value of Slack “channels,” or topic-centric communication venues that are a place for instant internal discussions, updates, file-sharing, and even new employee onboarding (see our current openings).

Naturally, we were very intrigued by the Slack S-1 filing (see here). Below are the Sentieo-powered annotations we made as we read through the document.

The company explains what it does in two areas: Slack is where “work happens,” but it also replaces work email.

We also noted the tried-and-true “freemium” business model; the company has both free and paid plans. Slack has over 600,000 customers, 88,000 of which pay for the software. The typical user spends nine hours connected to Slack and over 90 minutes being active on the platform:

We completely agree with the benefits they list below, because we’ve seen the results in our own organization: increased engagement, valuable integration, better communication, and a running archive.

We are not alone in our Slack fandom: 87% of surveyed users agreed with us.

As for market positioning, while Slack lists several factors that help the business, we think that the focus, early lead, network effects, and switching costs (in our words) are key.

Slack’s growth strategy seems like “Business 101” — more customers, more business from existing customers, and more integrations (which make the product stickier).

Just like us, Slack is investing heavily in AI/machine learning, search, and other advanced technologies to improve workflows.

Revenue and revenue growth are absolutely spectacular. Slack went from an already sizable base of $105 mm in FYE Jan 2017 to over $400 mm in FYE Jan 2019. While the revenue quadrupling in two years is impressive, we also see gross profit going up 4x, and losses at the EBIT level flatlined over this time period. This indicates that Slack is scaling very well (in contrast to other recent S-1 filers and IPOs where losses have been growing with revenues).

Slack’s operating metrics are also going in the correct direction: paid users growing, large paid users growing, and net dollar retention comfortably over 100% (meaning that Slack is growing its revenue from retained accounts).

Related to this, the company provides a great annual cohort graphic.

The quarterly metrics reveal absolutely no seasonality in revenues. It’s growth, growth, growth!

Slack S-1
Slack S-1

Slack does both custom and standard third-party integrations with other tools. This, in our view and experience, is critical to Slack’s “centrality” within a business.

Slack S-1

Slack lists personnel as a Risk Factor:

Slack S-1

Slack’s corporate governance disclosures show a structure similar to other recent tech IPOs: supervoting stock, staggered board, and others.

Slack S-1

Analysts doing the work on the offering need to consider the disclosure that the offering would have been an equity award trigger event (page 90) and the subsequent events on page F-37. (Yes, we did read the whole filing).

Slack S-1
Slack S-1

Since the company is doing a direct listing (like Google did) vs. a traditional underwritten IPO, AND there has been a secondary private market in the shares for years, we appreciate that the company included pricing and volume data.

Slack S-1

The company has over $600 mn in cash/bonds, and went as far as a Series H-1 in funding, raising almost $1.4 bn.

Slack S-1
Slack S-1

Current shareholders table:

Slack S-1

One final interesting tidbit: due to Board affiliation, payment processor Square Inc. is considered a Related Party. Square is paying Slack $230,400 for the current year.

Searching Square’s 10-K Business Description section (for Sentieo users: in:10k:BSN employees), we see that Square has 3,349 employees but also uses contractors. To ball-park the number, this indicates a price of $69/employee/year (about 50% off from the $150/year/employee for the more expensive Plus plan listed on the Slack website currently).

If you are interested in learning how Sentieo can make you more productive, please get in touch with us.

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