First Steps of Income Statement Analysis: A Look at Cheesecake Factory, Inc. (CAKE)

A picture is worth a thousand words — or maybe around $2 bn (which happens to be CAKE’s market cap). Three of Sentieo’s core functions are table extraction, plotting and record management. In this blog post, we demonstrate how analysts use these convenient functions to visualize a company’s financials in minutes.

CAKE, like many other restaurant companies, reports its Income Statement in a non-standard format: there is no all-encompassing COGS. Instead, we see different line items with different cost buckets, such as food costs, labor costs, and occupancy costs. In its earnings release 8-K, CAKE also calculates each of these line items as a percentage of sales.

Using Sentieo’s Time Series Function, we will build a time series containing the major operational line items: food costs, labor costs, and “other” operating expenses.

 

After the extraction, we can review the numbers by document by clicking ”Next’ (always check to see if the numbers are a 6-9-12 month summation, or just the Q4 is a 12-month. See the boxes in the lower left that help the adjustments). From here, one can open the source document, export to Excel, or open in the Plotter charting engine — after checking the numbers. For companies that change formats, you can enter the correct number in the columns on the left field. We do this here for Q1 and Q2 2015 as the numbers appear without a “%” signs.

The corrected numbers for 2015 look like this:

After we have made sure that the numbers look good (all are coming from quarterly columns, all are in the same percentage format), we open the data in Plotter.

Since all numbers are given as a percentage of sales, we can merge the Y-axes from the chart settings.

To get a better idea for the underlying cost trends, we are muting the quarterly numbers for each series, and adding a 4-quarter moving average. We can also customize colors, line format and line thickness.

Here we can see the longer term trends. While food and occupancy costs have stayed relatively steady (as a percent of sales), we can see that labor expenses have been moving up.

 

We are now ready to save, tag, and share the chart with the team.

The chart is now a part of our CAKE Notes, and can be commented on, added to full theses, or to other Notes inside Sentieo’s Notes Records Management System.

 

From here, we are ready to dig in deeper in the corporate documents to see what has been going on. Click here for interactive chart.

See how these, and many other tools on the platform, can make your research process more efficient: request a free trial here.

Our $19 Million Series A Round: What It Means For Sentieo and the Future of Financial Research Software

sentieo

 

By Alap Shah, CEO @ Sentieo: On behalf of the entire Sentieo team, I’m proud to announce that Sentieo has secured $19 million in Series A funding. We are thrilled to have Centana Growth Partners leading the round, and we couldn’t be more excited to welcome Eric Byunn to our board of directors.

This milestone caps 18 months of accelerating momentum at Sentieo, driving a tripling of our client base to 700, a doubling of our global headcount to 160 and the release of the Sentieo Notebook / RMS (Research Management System) for collaboration. While we’re certainly celebrating today’s milestone, fundraising is merely a means to our ultimate end- accelerating human productivity and collaboration in the financial space.

We’ve come a long way from our earliest days, when my brother Naman and I began building tools to improve my own research productivity in running our family office portfolio. Working with our early engineering team, I remember being struck by the huge and immediate performance boost I experienced when I was delivered search and analytics software that was custom built for my workflow. This new capital will help accelerate our R&D spend and go-to-market strategy to help us deliver this same productivity boost to more financial decision makers globally.

The pace of change continues to accelerate in the financial industry, with increased regulation, continued shifts to passive and quant strategies and shrinking trading commissions / fee pools. In our experience, the most important underlying change is the relentless explosion in data available to inform decisions. Beginning with the internet and accelerating with mobile, cloud and now AI, data is multiplying, together with the opportunity for insight. There is a prevailing narrative across industries including finance that algorithms are best equipped to generate this insight, translating to a growing loss of human jobs.

We see things a bit differently from our unique vantage point. AI and related technologies such as Natural Language Processing (NLP) are best at performing repetitive, trainable processes. In our world we use AI and NLP to help researchers take away the monotonous work of extracting financial data from tables, finding key management commentary in a transcript or alerting a user to changes in a company’s risk factors disclosures. Using our tools, analysts can drastically increase their speed and coverage without sacrificing the depth and accuracy of their work, freeing them up for more meaningful work that only humans can do. Getting out from behind their desks, researchers can visit more management teams, attend more industry conferences and spend time cultivating unique data sources to develop differentiated viewpoints on markets and industries.

Finally, as the stakes go up and the number of data inputs increase, finance continues to become more of a team sport. Our work with increasingly matrixed organizations with diffuse knowledge and skill sets has underscored the unique challenges in bringing an organization’s best thinking to bear in driving decisions. This institutional knowledge management and collaboration function is a uniquely human act that can’t be matched by machines. Sentieo’s Notebook / RMS is custom designed to enable humans and software to work seamlessly, automating knowledge sharing, cataloguing decision points, leaving a clear audit trail and allowing concise measurement of outcomes. The results are clear- better visibility, accountability and performance.

To see how Sentieo can make you Superhuman, simply go to Sentieo.com and sign up for a free trial. If you would like to receive content related to topics of interest in the markets, don’t forget to subscribe to the Sentieo Blog so that we can notify you of new posts by email.

Save Time Analyzing Off-Balance Sheet Commitments with Sentieo

Not all contractual obligations that result in cash outflows are listed in a company’s balance sheet. Looking purely at debt figures leaves an incomplete picture of future funding needs. In this blog post, we will find and visualize these liabilities in several examples across industries. While most analysts are very familiar with common items like operating leases and post-retirement healthcare liabilities, here are a few other items that we found.

We compiled these using the search term “Contractual Obligations” in Sentieo’s Document Search, and then built a Time Series chart using the Sentieo Time Series function to export from the 10-K or 10-Q. Lastly, we displayed the data in Sentieo Plotter.

Netflix: The online streaming hegemon has over $18 billion in future content liabilities. That’s a lot of binge-watching! The number has been growing steadily every quarter. Public chart viewer: http://snt.io/3YEv9pLtK

Nike: The dominant athletic footwear and apparel maker is known for its high-profile athlete endorsements. But these contracts do not come cheap; Nike’s 10-Ks show a growing off-balance sheet liability, now at over $10 billion. Public chart viewer: http://snt.io/aeEv9rCv9

Waste Management: The leader in waste management has over $3 bn (and growing) in environmental-related liabilities around the closure of garbage facilities at the end of their useful lives. Public chart viewer: http://snt.io/rcEv9sR9C

Vulcan Materials is a large supplier of aggregates (like sand and crushed stone) to the construction industry. We plotted the mineral royalties that they expect to owe to the property owners of the sites that they operate. Public chart view link: http://snt.io/fNEv9srx4

Valero, a large oil/petrochemical refiner, has over $30 bn in purchase commitments, mostly crude oil. The numbers have stayed fairly steady over the last 10 years. Public chart viewer: http://snt.io/EgEv9vTXr

Finally, our favorite find: Deckers Outdoor Corporation. This parent company of the UGG brand has purchase commitments for (you guessed it!) over $100 million dollars of sheepskin. This is a new disclosure; only two 10-Ks have it, so we are not showing a bar chart.

Sentieo Guide: Quick Tips For Starting a Hedge Fund

Chances are that you’ve thought about starting your own hedge fund. Perhaps you’ve felt an entrepreneurial pull, have an investment strategy in mind, or know a team of people with a similar goal.

Below, we’ve compiled a list of some of the best guides we’ve found online.

 

Resources:

Business Insider

Investment Law Group

Grant Thornton / Stonegate Capital Partners

Hedge Fund Law Blog

Investopedia

Vanity Fair

Mergers and Inquisitions

HFM Global

Hedge Fund Seeders

Hedge Fund Technology

Hedge Fund Law Firms

 

If you’d like to download Sentieo’s full, comprehensive guide that pulls together the best advice from all of these sources —  including legal advice, raising capital, office space, building a team, and more — download the full whitepaper.

Here are the topics that the guide covers:

  • Fund Structure
  • Raising Capital
  • Building a Team
  • Legal Considerations
  • International Considerations
  • Office Space
  • Technology Stack
  • Naming the Hedge Fund

 

“Pumpkin Spice” season starts earlier than ever, and is bigger than ever (at least on the internet)

Do you ever feel like Pumpkin Spice season seems to start earlier and earlier? Well, it’s true. It’s also bigger than ever — at least in Search.

Sentieo’s Mosaic pulled ten years of “pumpkin spice” search data, and we see some clear trends. Pumpkin spice season was typically off to a slow start, building up to a spike around Thanksgiving in late November (and we see the late November spikes on different days as Thanksgiving moves around).

We also see that over the last ten years, the pumpkin spice season has been starting earlier, and search volume in September/October has started to dwarf the previous peak around Thanksgiving. Finally, the pumpkin spice volume peaked in early September this year!

We are also seeing the term “pumpkin spice” appear across corporate communications: press releases, transcripts, and presentations. Using Sentieo’s thematic search, we looked for “pumpkin spice” across all corporate communications. We see a range of pumpkin spice products from Dunkin, Coca-Cola, IHOP, and even a pumpkin spice Baileys coffee liquor from Diageo.

And, of course, the 800-pound pumpkin spice gorilla is Starbucks: the company announced in a tweet that its legendary pumpkin spice latte is back on August 28th. Below, we used Sentieo’s Plotter to look at the frequency of pumpkin or PSL mentions from the Starbucks Twitter account.

Interactive chart

Locating Transaction Comparables in Fairness Opinions with Sentieo

A fairness opinion is a report, usually created by an investment bank, showing that a contemplated strategic transaction (such as a merger) is fair to the shareholders who are represented by the company’s Board of Directors. A fairness opinion will typically contain carefully researched and adjusted trading and transaction comparables.

Fairness opinions are used by buyside and sellside analysts to analyze transaction multiples and trends. They are used by activist investors who might feel that the target is undervalued and look to exercise their appraisal rights in court. In a similar fashion, securities litigation specialists might look at the documents while seeking compensation on behalf of shareholders. Finally, fairness opinions are looked at by corporate M&A/development professionals who monitor their own or adjacent industries.

Fairness opinions are usually rendered after the transaction has been announced, and they are filed with the SEC. However, a merger or an acquisition typically creates a deluge of filings from both parties, making locating this important document time-consuming, as there is no special SEC form for fairness opinions.

Sentieo users save time locating fairness opinions in seconds. Sentieo can also locate fairness opinions for companies that no longer trade. Here we show two examples: the pending deal between ConAgra Brands and Pinnacle Foods, and the acquisition of LinkedIn by Microsoft from a few years ago.

Pending deal between ConAgra Brands and Pinnacle Foods:

Acquisition of LinkedIn by Microsoft:

 

 

 

A Social Media and Sentiment Analysis of Nike (NKE): What Does It Mean for Future Purchase Intent?

Nike’s recent sponsorship of Colin Kaepernick and his campaign of kneeling during the national anthem has thrust the Nike brand back into the spotlight. The is not an unfamiliar position for Nike, and one that it has successfully occupied in the past.

As a brand that skews young and urban, the calculus is clear: Nike can galvanize support for Kaepernick’s cause and burnish its own brand among these key constituencies, while limiting negative brand impact among older audiences that are less important to its business. In other words, Nike is playing to its key customers.

Nike and Trump

As part of playing to that base, Nike’s calculated decision also suggests that it is comfortable potentially antagonizing a generally polarizing President, as President Trump has been a vocal critic of Kaepernick throughout the kneeling debate.                                     

So far, Trump’s Tweets have driven a fairly tepid 58K retweets between them, compared to 652K retweets for the two major Kaepernick Tweets.

With Nike taking a play from President Trump’s playbook, perhaps President Trump sensed that giving the Tweet more publicity would only fuel the campaign’s reach, and has thus refrained from tweeting about the campaign since September 7th.

For Kaepernick and Nike, this has been a watershed campaign, driving massive Twitter mentions that are far eclipsing previous peaks:

Twitter Mentions: Nike vs. Kaepernick

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

Nike is a shrewd marketer and we presume that they extensively focus-grouped the campaign’s impact before going live. However, there is no telling what happens once the campaign is in the wild.

Sentiment Analysis of Nike Tweets

We used Sentieo’s proprietary sentiment analysis engine on Nike Tweets and news to analyze sentiment immediately before and after Kaepernick’s initial Tweets, testing our hypothesis that the campaign would be a net positive for Nike’s brand and advertising reach.

The initial Tweet came out on September 3rd with a simple image and message:

The Tweet was followed by a two minute Nike video ad released on September 5th:

We scored the sentiment of a sample of Tweets in the days since the start of the campaign, and found some interesting results:

Before the initial Tweet, Tweets were scarce and sentiment was fairly broadly distributed. Tweet volume spiked and sentiment turned markedly negative in the hours after the initial Kaepernick Tweet, as a multitude of Twitter accounts called the action unpatriotic and called for boycotts on Nike products.

However, two days later, when the ad was released on Thursday Night Football, we saw the Nike marketing machine kick into high gear. It drove a second spike in tweets and increasingly positive sentiment as the audience digested the powerful ad and its message of excellence, commitment, and sacrifice — classic Nike marketing staples.

Positive and Negative Twitter Hashtags

When we surveyed the most popular daily hashtags within Nike Tweets, we found a similar story. Blue hashtags below indicate positive sentiment (led by #JustDoIt most days), while the red hashtags indicate negative sentiment (#BoycottNike and #MAGA – Make America Great Again).

Red hashtags were popular in the early days of the campaign, but were overwhelmed by the blue hashtags after September 5th.

Positive and Negative Sentiment Hashtags

 

Examining Purchase Intent on Twitter

To gauge the impact on consumer purchasing decisions, we also analyzed trends for purchase intent on Twitter, e.g. “I want a pair of,” “Mom bought me some,” etc.

The chart below shows that Nike had an all-time high of purchase intent tweets after 9/3, and positive purchase intent Tweets have outnumbered negative purchase intent Tweets 5:1.

Nike: Postitive vs. Negative Purchase Intent

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

When including the much broader boycott campaigns, we see more negative intent. However, we believe that purchase intent — positive or negative — is a much more powerful indicator than someone merely retweeting a boycott hashtag.

Nike Positive vs. Negative Purchase Intent, with “boycott” Twitter mentions

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

Collectively, this signals to us that the campaign is working from a marketing perspective. We also think the ROI on spend from this will be very high, given the increased reach through major digital channels.

Kaepernick’s Tweet from 9/3 was liked 900k times and retweeted 366k times. The video ad on 9/5 was viewed 24.9M times on Twitter and over 15M times on YouTube.

Instagram Influencers

There is also a beneficial secondary effect from other celebrity influencers. For example, Lebron James’ Instagram post has generated 1.4M likes and 16.1K comments.

News Articles

We also analyzed Nike news articles, and now believe that the media will portray Nike in an increasingly positive light, further contributing to the virality of the campaign. Sentiment turned quite negative after the initial tweet, but started a gradual recovery after Nike released the video ad.

While some investors are worried about headline risk with Nike’s campaign, we find that the campaign was well thought out, and is likely to increase its mindshare across its core demographic. Influencers and the news media have expanded the reach of Nike’s campaign, and general consumer purchase intent has increased as a result.

The Adidas ($ADS) Brand: Climbing Up or Decelerating?

In this post, we look at Adidas’ growing popularity over the past few years, as well as its more recent deceleration. Sentieo gives us some insights into Adidas’ key strategies.

The Sportswear Boom

The sneakers market — and actually the whole sportswear/athletic footwear sector — has been an interesting space to follow for the past few years. From the rise of yoga-inspired Lululemon (LULU), to the innovative marketing strategies that the triggered growth of German brands Adidas and Puma (PUM), through the volatility of the Nike/Jordan (NKE) brands, and the boom and bust of Under Armour (UAA). With Sentieo, we’ve been able to track and understand the activity of these companies.

In this post, we will focus particularly on Adidas. The Adidas brand has experienced a strong resurgence in the past few years, thanks to the success of its unique sneaker models and powerful endorsement contracts with non-athlete superstars like Kanye West and Pharrell Williams. As a result, this celebrity-infused strategy was also implemented by other sportswear brands like Puma, whose famous personalities include popstar Rihanna.

Besides tracking Adidas’ surge in sales and profits, we also use the alternative datasets in Sentieo’s Mosaic tool. This data gives us a unique view of the underlying trends for a particular company or industry. Alternative data is consistently flowing without delay, while new financial information is usually only available every three months (or every six months in many cases). For example, the chart below shows alternative dataset Google Trends (web search data), highlighting Adidas’ massive growth and subsequent deceleration:

Adidas.com Google Trends:

The black line shows Google Trends’ raw search data for the word “adidas,” while the pink and the yellow lines are the 3-months moving averages of the Y/Y variation of Google Trends data for the United States and the whole world, respectively. The Y/Y variation neutralizes the seasonal effects, while the moving average makes the underlying trend more visible.

In addition to Google Trends, another Mosaic data set that gave us well-timed insights into Adidas’ growing popularity and subsequent deceleration was Alexa website traffic, which helps us track consumer interest. In the chart below, we plotted a 30-day moving average (dashed line) and a 90-day moving average (dashed line) for Adidas.com website views. As we can see, the strong run-up and subsequent deceleration was confirmed by the trends in website traffic as well.

 

Adidas.com Alexa Website Visits:

Sentieo’s alternative data tools allowed us to anticipate Adidas’ deceleration, and will continue to give us an exclusive view into the popularity fluctuations that the brand experiences. As a result of declining customer interest, Adidas’ revenue growth and growth expectations declined to low-to-mid single-digit rates, but the company is implementing other strategies to fuel bottomline growth and reignite sales momentum.

 

A New Strategy: Limiting Supply

Popular Adidas shoe models such as the “Stan Smith” and “Superstar” have been major contributors to Adidas’ massive revival over the past few years, which have been supported by the aforementioned endorsements and innovative marketing campaigns. While other styles such as the Ultra Boost are gaining market share at a massive rate, Adidas is actually limiting the availability of popular shoes (the two flagship sneakers just mentioned), and two models that many consider “evergreens” in Adidas’ portfolio. This kind of move, which has already worked well for Adidas in the past, has the potential to help Adidas’ merchandise margins, which have already been significantly expanding recently. As reported in the past earnings release, Adidas’ gross margin has increased by a few hundred basis points, and the recent moves may indicate an attempt to push margins even further if Adidas’ supply limitation strategy works.

However, the decision to limit supply of some sneakers may also be a proactive move to avoid overexposure and excessive discounting of Adidas’ products. The number of discounts on Adidas products has increased recently, and the decision to limit supply of some key products may be a response to the growing pricing pressures generated by an excessive supply. One Sentieo dataset we can use to track promotional activity around the Adidas brand is Twitter, a social media platform where brands and third-party retailers frequently advertise their special offers. We used a 30-day moving average for the number of mentions of promotional activity around Adidas products, and noticed a significant increase over the past five years, culminating in an all-time high at the end of June.

 

Twitter Mentions – Adidas Discounts

However, the new strategy may not be simply a way to increase margins. This strategy of reducing supply to increase desirability is nothing new in the fashion world and has already been implemented successfully by Adidas in past years. The Adidas Stan Smith shoe, for example, has already experienced two peaks of popularity in the past 12 years – one in 2006 and one in 2016 – as the Google Trends chart below shows:

Management is likely trying to trigger another growth cycle by replicating the same strategy that has already been successful.

Sentieo gives us a timely, in-depth view into several fundamental trends affecting an industry, and a deeper understanding of phenomena that affect a business.

In the case of Adidas, the influential factors include: the current direction of customer interests, the popularity of a brand/product, and the intensity of promotional activity — all giving us important hints about the future direction of the company’s sales and margin trends.

Top 17 Value Investing Blogs You Should Be Reading

In the constant race against the clock, you shouldn’t waste time reading mediocre content. We put together this list of must-read blogs based on feedback from our team of former analysts and additional in-depth research.

1. ValueWalk

Started in 2010, ValueWalk.com offers breaking financial industry news — with a focus on hedge funds, large asset managers, and value investing. The site provides quality content that is important to value investors (most of which is free).

It is read by senior level executives at the largest banks, hedge funds, asset managers, and Fortune 500 companies.

2. The Reformed Broker

This blog was started in November 2008 by the New York City-based financial advisor and CEO of Ritholtz Wealth Management, Joshua M. Brown.

The blog covers markets, politics, economics, media, culture and finance. Brown uses “statistics, satire, anecdotes, pop culture references, sarcasm, fact, fantasy and any other device” to communicate his market-related insights.

Brown has been featured in or has written for Fortune, Forbes, the Wall Street Journal, MarketWatch, Dow Jones Newswires, Bloomberg, Reuters, and more. He is also an on-air contributor to CNBC.

3. SumZero

This site describes itself as “the world’s largest community exclusively for professional investors, providing quality, peer-reviewed investment research from top analysts and rising stars in the fund industry.” Members describe this site as network-enriching and career-enhancing.

4. Base Hit Investing

John Huber is the portfolio manager of Saber Capital Management, LLC, a value-focused investment firm. Saber’s objective is to compound capital over the long-term by making investments in undervalued stocks of high-quality businesses. A few of his article topics include:

    1. Case Studies
    2. Education
    3. How to Improve Results
    4. Industry-Banks
    5. Industry-Insurance
    6. Industry-Oil
    7. Industry-Railroads
    8. Investment Ideas & Company Research

5. Zero Hedge

The mission statement of ZeroHedge on their website gives a good sense of their content:

    1. to widen the scope of financial, economic and political information available to the professional investing public.
    2. to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become.
    3. to liberate oppressed knowledge.
    4. to provide analysis uninhibited by political constraint.

Readers can subscribe to their newsletter for daily alerts and a weekly digest of articles.

6. Contrarian Edge

Vitaliy Katsenelson, author of this blog and a couple books, is a former analyst, portfolio manager, and now CEO of Investment Management Associates. His blog posts cover everything from behavioral investing, to capitalism, to cryptocurrency and specific tickers.

7. The Brooklyn Investor

The Brooklyn Investor is somewhat mysterious, in that he doesn’t reveal his real name on his blog. However, he explains that most of his career has been on Wall Street, starting in investment strategy/portfolio management, trading, futures/options and OTC derivatives structuring and trading, proprietary trading, special situations, and systems trading of futures at “one of the big hedge funds.”

He has always been a fan of Warren Buffett and other long term investors, and “it is reasonable to assume that [he is] long stocks that he thinks] are interesting and short the ones that I don’t like etc.” His blog covers everything from AAPL and GOOG to the gold standard.

8. Memos from Howard Marks

Oaktree Capital Management is a global alternative investment management firm with expertise in credit strategies. A section of their website is devoted to insights specifically from their internal team about investment strategies and investment philosophy. Howard Marks (CFA and Co-Chairman of Oaktree) covers topics from index investing to macro-fragility, to algorithmic investing.

9. Berkshire Hathaway Reports

Quarterly and annual reports – also easily accessible within Sentieo Document Search!

10. The Manual of Ideas

Through invitation-only events and member publications, MOI Global fosters a community of intelligent investors united by a passion for lifelong learning. The Manual of Ideas started out nearly a decade ago, focused on content. As the founders went out to gather and generate uniquely differentiated content for value-oriented investors, they came to appreciate the tight-knit value investing community that had been developing for many years thanks to a strong network formed by the Berkshire Hathaway annual meeting.

11. KASE Learning

Whitney Tilson is one of the most public longstanding value investors. Rooted in sharing their half century of experience as value investors and fund managers, Tilson and his long-time partner, Glenn Tongue have produced a multitude of resources on this site.

12. Value Investor Insight

Whitney Tilson also co-founded this monthly newsletter in 2004, in which he and editor in chief John Heins interview two portfolio managers about current topics.

13. Value Investors Club

Value Investors Club is “an exclusive online investment club where top investors share their best ideas.” VIC prides itself in the fact that its members are admitted only because of the strength of their investment ideas, and not their job titles. This selection process adds a number of diverse perspectives the forum.

14. csinvesting

The author of csinvesting has an interesting background: “In my peripatetic life I have been a ruby smuggler, commodity trader, securities analyst, investment banker, and entrepreneur. Each role taught me more about value investing.” His philosophy is for investors to learn from the successes and failures of others, so his blog covers mostly case studies.

15. Value Investing World

Value Investing World is a blog self-described as “dedicated to promoting the multidisciplinary approach to investing and development of – as Charlie Munger describes it – a latticework of mental models…and largely focused on linking to investing and economic material it deems of interest.”

16. Investor Junkie

Articles for everyone from beginner to advanced investors. Topics include everything from “socially responsible investing” to  “investing as an expat.”

17. A Wealth of Common Sense

A Wealth of Common Sense focuses on wealth management, investments, financial markets and investor psychology. Author Ben Carlson, CFA, manages portfolios for institutions and individuals at Ritholtz Wealth Management LLC. Ben has written a few books and has a weekly podcast called “Animal Spirits” which covers financial markets, personal finance, movies and dad life.

 

 

How to Use Web Search Trends In Your Fundamental Research Workflow: Beat or Miss?

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.

Alternative data is a hot topic these days. From buzz around satellite imagery data to social chatter, there is a deluge of data out there. How can you make use of it, though?

Let’s walk through an example with Sodastream ($SODA). We used Sentieo to plot global web search trends for the “sodastream” keyword (dark blue) against the $SODA stock price (light blue).

View Interactive Chart

The correlation is great, but we don’t suggest that you buy a stock just because alternative data is going up. You should instead use this data as another pillar of a comprehensive investment process. Ask yourself: how does alternative data tie back to the fundamentals of a business?

As consumers, we tend to search for products online before purchasing. In most cases, searching Sodastream signifies interest in the brand or an intent to purchase – let’s call this “digital traffic.” Some percentage of that “traffic” will convert to true revenue as the consumer makes an purchase online or in-store at a later point.

So while search trends will most closely tie to digital traffic, we hope it can be a meaningful indicator for overall Revenue (or other top-line key performance indicators). As we can see from the chart below, that seemed to be the case here. Search trends had a 0.9 r-squared with $SODA’s revenue growth.

View Interactive Chart

This example is just one way that search trends can help you in your fundamental research. Stay tuned for the upcoming posts in this blog series on alternative data search trends.