What’s For Brunch? Trending Foods with Growth Potential: Part 2

Last week, we took a close look at the food industry, which certainly follows trends and changing consumption habits that can ultimately greatly affect the performance of various companies. Using Sentieo, we were able to take a look at data and trends regarding protein-rich grains like quinoa, hemp, and sorghum. This week, we’ll examine how the hype around brunch and street foods have been discussed across company filings.

 

The Avocado Craze and Brunch Boom

Avocados have been available to consumers for a while, but they were not very popular outside of Mexican cuisine until a few years ago. Since 2010, the popularity of this fruit has boomed, and consumer interest has spiked due to people’s greater awareness of healthy eating habits. The benefits of the avocado are many: the fruit has more potassium than bananas and is full of antioxidants, to name a few.

Google Trends data from Sentieo shows the booming popularity of the avocado quite clearly. The volume of searches has risen by over 400% since 2004 – 2008:

 

Many companies are not waiting on the sidelines. They are well aware of the recent trends, and the number of times that the word “avocado” has been mentioned in company filings proves it. (See below).

There are numerous companies exposed to the growing popularity of the avocado. Del Monte produces and markets several avocado products, while Limoneira claims to be one of the leading producers of avocado in the Americas. In the restaurant segments, more and more companies use it as an ingredient in their recipes. Del Taco Restaurants even mentions avocado in the company’s About section on every press release:

Consumers’ changing tastes are not just reflected in the growing or falling popularity of specific foods, but also in changing consumption habits when it comes to where to eat and when to eat. The way people eat and relax across the world is evolving, and the growing popularity of brunch is a clear example of that.

Document hits confirm that the brunch boom is a trend that many companies have been riding for several years now:

Based on the number of times that the word “brunch” has been mentioned in filings and transcripts, the most active companies in the brunch space seem to be Brazilian steakhouse chain Fogo de Chao, The Cheesecake Factory, and Brinker International. Even hospitality chain Marriott International has tried to take advantage of the new trend by offering several brunch options to its customers.

Speaking of how and where, we can’t avoid mentioning the constant growth of street food concepts. Street food’s growth is rampant. Even Michelin has recognized street food in its Hong Kong guide, and even two Singapore street-food hawkers have each received one Michelin star. The street food concept is loved by companies that want low-risk ways to test a new restaurant concept or food offering before committing to larger investments.

Look at how the number of mentions of “street food” in company-related documents and transcripts has boomed since 2013:

It is also a reflection of the growing interest from customers:

Street food combines the pleasure of eating tasty food with an important experience component, and it’s highly shareable, as the growing number of Twitter mentions indicates:

 

Sentieo’s tools help us identify, analyze and compare industry trends quickly and effectively. We used Document Search and alternative data from Mosaic to analyze these interesting trends in the food industry, a segment of the consumer space that is experiencing significant changes due to increasing health consciousness, changing consumption habits, and the rising adoption of specific diets for ethical reasons.

However, Sentieo’s tools can be used to run ad-hoc searches on a virtually unlimited number of topics, allowing us to gain important insights into any industry that are not available anywhere else. Stay tuned for the upcoming Part 3 of our Trending Foods Series!

What’s For Lunch? Trending Foods with Growth Potential: Part 1

Like other segments of the consumer sector, the food industry follows trends and changing consumption habits that can benefit one company over another. Particularly in the recent years, we have seen changing attitudes towards health, community and the environment, which have affected consumption habits and translated into the growing popularity of specific foods and drinks.

Foods without artificial additive products, colors, flavors, sweeteners, and hydrogenated fats have become increasingly popular, and the acquisition of Whole Foods by a high-tech growth giant like Amazon is indicative of the growth potential seen in this market. In this post, we use Sentieo’s tools to look at a few interesting trends in the food industry.

 

Protein-Rich Grains Gain Popularity

With the World Health Organization warning about the potential danger of eating too much meat, the vegetable sources of proteins have become increasingly popular, and not only among fitness and body-building enthusiasts. They are also popular among vegetarians and, above all, vegans, who need non-animal sources of proteins. Protein-Rich seeds and grains have become increasingly popular as standalone foods and as add-ons to yogurt, oatmeal, and peanut butter. Let’s take a look at a few of them a bit more in detail.

2013 was named the official year of quinoa, but it seems that the grain has become even more popular since then. We used Sentieo’s Mosaic tool, which offers users the ability to find and visualize alternative datasets. The number of mentions of quinoa in company filings and transcripts has basically tripled since 2013:

Sentieo

 

Consumer interest in quinoa, which we measured using Google Trends data, has also increased substantially since then, but was basically flat during the past three years as other vegetable sources of proteins started to gain market share. In the chart below, you can see Google Trends data for the word “quinoa” (blue line). We have also added a 13-week moving average of the Y/Y variation of Google Trends data (yellow line), which makes the underlying trend more visible and neutralizes seasonal effects:

The increasing popularity of hemp is even more evident. Like quinoa, hemp is a protein-rich plant and is considered a complete protein source, which means it provides all the essential amino acids (an extremely rare characteristic for vegetables). Hemp’s popularity has skyrocketed in the past few years, as the growing number of mentions in company documents and transcripts shows:

Also, consumers’ interest in hemp — and hemp seeds in particular — has skyrocketed:

Another protein-rich grain that is becoming increasingly popular is sorghum. Although it’s not a complete source of amino acids, there are many interesting ways it can be used. It is a good sweetener and can be used as a substitute for wheat flour. However, it has no gluten, so it requires a binding agent in some recipes, such as a xanthan gum or cornstarch. It can also be popped like popcorn. Sorghum’s popularity has grown consistently since 2010-2011:

This is confirmed by the growing interest from consumers:

Sentieo’s tools help us identify, analyze and compare industry trends quickly and effectively. We used Document Search and alternative data from Mosaic to analyze a few interesting trends in the food industry, a segment of the consumer space that is experiencing significant changes due to increasing health consciousness, changing consumption habits, and the rising adoption of specific diets for ethical reasons.

We can easily see what’s driving customers’ interest, such as the increasing popularity of protein-rich grains, and how the companies are responding to them. We have also detected which companies can benefit from these trends very easily by monitoring how many times certain keywords have been mentioned in a company’s documents. However, Sentieo’s tools can be used to run ad-hoc searches on a virtually unlimited number of topics, allowing us to gain important insights into any industry that are not available anywhere else. Next week, we’ll feature more trending foods.

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

Today we published our quarterly Sentiment Analysis Report, which summarizes last quarter’s top keyword searches and provides detailed sentiment analysis across all industries. We used Sentieo’s 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.

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 themes we look at closely in this report are Cryptocurrency and Trade Tariffs. When analyzing the number of mentions of crypto by company, the companies that are leading the conversation are currently Nvidia (crypto chip vendor), Visa (payment company), CBOE (professional crypto derivatives exchange), and Salesforce (CRM and enterprise SaaS vendor). 

Talks of trade wars have unsurprisingly become central to many companies, with a marked edge towards uncertainty, caution and even fear for the effect it will have on business. Read more on page 4 of the report.

With these quarterly reports, 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 cryptocurrency.

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.

Look Who’s Talking: How Active Are CEOs on Transcripts, and Why Does It Matter?

What CEOs say — or don’t say — on a transcript can mean a lot. A recent study by the University of Chicago Booth School of Business revealed the following about CEO activity on calls:

[Research] indicates that the chief executives who spoke more — presumably because they were more knowledgeable — also tended to earn more relative to the rest of the executive team. What’s more, firms that had mismatched compensation strategies (i.e., chief executives who talked more but got paid less) had lower firm value than those where talk time and compensation were aligned….In the study, the researchers used how much and how often the chief executive spoke in contrast to other firm employees as an indicator of how knowledge is dispersed throughout the firm.  (Booth School)

Thus, investors can learn a lot from CEO activity on calls, which seems to be correlated with firm financials. Sentieo can aid with this research by helping you search and highlight CEO language on calls.

We ran a search in Sentieo Doc Search across the S&P 500, using IN:TR to narrow down our searched documents to only transcripts. From there, we filtered down our search to CEO speech only.

We took a look at the results, which include a summary of the companies that have the most instances of their CEO talking on transcripts:

 

From the summary above, we see that General Electric has had its CEO talking the most frequently on its calls. We can click into these highlighted instances to specifically look at the language used by the CEO.

 

Management calls will typically seem optimistic, but you can look for clue words to get a better picture of the underlying meaning. For example, the Booth School article notes the following:

When a chief executive tells analysts that “lumpiness,” “headwinds,” or a “wait-and-see” period is on the way, it may be time for an adjustment in your portfolio. Euphemisms such as these can obscure the details of bad news, and research suggests that greater use of them is associated with lower stock prices in the quarter ahead, even after taking into account the already disclosed financial results.

We narrowed down our search to see if the GE CEO mentioned “headwinds,” and if so, how many times.

 

Here is a closer look at  the most recent mention:

 

We then exported mention results to see exactly how many times the GE CEO mentioned “headwinds” (34 times since July 2016), and also within which contexts.

Euphemisms aren’t the only phrases that analysts should track. Other linguistic indicators to watch for include:

  • Executives who are uncomfortable with what they are saying and who often use “distancing language,” changing pronouns from “I” and “we” to “the company.”
  • Openness about risks (generally thought of as a sign of genuine enthusiasm)
  • Comments on liquidity: trends in cash flow (or lack there-of) on balance sheet
  • Use of credit lines (are they too dependent on these?)
  • New product announcements, focus on research and development, or R&D

In the same vein, Harvard’s Ian D. Gow, Chicago Booth’s Steve Kaplan and Anastasia A. Zakolyukina, and David F. Larcker of Stanford researched how CEO personalities (as seen through call language) were correlated with firm performance:

[The] companies of CEOs who have extroverted personalities, as observed in the words used in the transcripts, were more likely to have lower cash flows and lower returns on assets. Top executives deemed to be more conscientious tended to run slower-growth companies, while those whose dominant personality trait was openness had companies with a greater focus on R&D.

Lastly, we used Sentieo’s sentiment analysis engine on the GE transcript to better understand the management and analyst sentiment, and any discrepancies in between them. This report the reveals the following output from past quarters’ conference calls:

 

The Booth School report and our sentiment analysis engine show that the language of CEOs should not be discounted. Words allow investment professionals to quickly gain insight into firm’s future performance, and make decisions based off this knowledge.

You May Be Losing Money By Not Redlining Language Changes in 10Ks

As 10Ks get longer and more complex, it gets harder and harder to find the material financial information within them. In fact, the average number of pages in a 10K has grown almost 34% over the past 8 years. We used Sentieo data to create the graph that shows this increase below.

Data Source: Sentieo

The HBS finance paper Lazy Prices shows that this rich information is hidden in 10Ks and investors are missing it (or at least taking their time incorporating it into stock prices).

The HBS paper explains how:

 

Changes to the language and construction of financial reports also have strong implications for firms’ future returns: a portfolio that shorts “changers” and buys “non-changers” earns up to 188 basis points in monthly alphas (over 22% per year) in the future. Changes in language referring to the executive (CEO and CFO) team, regarding litigation, or in the risk factor section of the documents are especially informative for future returns. We show that changes to the 10-Ks predict future earnings, profitability, future news announcements, and even future firm-level bankruptcies.

 

Finding changes across 10Ks seems like a time-consuming chore. However, with a redlining tool like Sentieo, you can see these changes in seconds. Let’s use the same example that the authors used in the report: bioscience/medical product company Baxter International (BAX). Follow this two-step process:

1. Enter the ticker BAX and the query IN:10K to pull up all of Baxter’s 10Ks.

2. Focus on the years where the biggest changes in 10K language were said to occur: the 10Ks from 2008-2009. Click the redlining icon, checkmark “All changes,” checkmark “Compare with (YoY) 10K – q4 2008,” and click the “Apply” button.

See the 10k below, after we applied Sentieo redlining. As the HBS report discusses, mentions of the words, “scrutiny,” “regulatory,” “laws and standards governing” were added to this 10k when compared with the one from the previous year. The purple text shows new language:

 

There was also a change in language regarding “stopped shipments” (versus “hold shipments” in previous 10K) of the company’s COLLEAGUE infusion pump product. Another addition was “substantial additional charges, including significant asset impairments” (versus just “additional charges” in the last 10K). See the revised copy in purple below.

Many news headlines flooded the media in the months following this 10K’s release in 2010, possibly resulting from the addition of these more regulatory-related and overall more negative words to the 10K. The HBS report explains this in more detail, including the fact that the stock price ultimately plummeted as a result:

 

For instance, a New York Times article published on April 24, 2010 reported that the FDA was clamping down on medical devices – in particular, on automated IV pumps used to deliver food and drugs. From the article: “The biggest makers of infusion pumps include Baxter Healthcare of Deerfield, Ill.; Hospira of Lake Forest, Ill.; and CareFusion of San Diego.” The article went on to quote an FDA official commenting that the new, tighter regulations would slow down the FDA approval process for automated pumps. Then, on May 4th (just 10 days later) the New York Times reported that the FDA had imposed a large recall on Baxter: “Baxter International is recalling its Colleague infusion pumps from the American market under an agreement with federal regulators that sought to fix problems like battery failures and software errors.” Moreover, the stock returns of Baxter International moved substantially surrounding the New York Times articles. In the two-week period around the articles, Baxter’s price burned down more than -20%…the price remained depressed, not reverting over the subsequent 6-month period. In contrast, we see no significant reaction to Baxter’s own disclosure of its 10-K on February 23, 2010, nearly two months before the news articles were published.

 

Looking at the stock price over time using Sentieo Plotter, one can see the drastic dip in 2010 after the 10K was released in February.

The HBS report also showed that companies with 10-K content changes generally demonstrated substantially lower future stock returns versus other companies without changes:

 

We first show that firms that change their reports experience significantly lower future stock returns. In particular, a portfolio that goes long “non-changers” and short “changers” earns a statistically significant 34-58 basis points per month – up to 7% per year (t=3.90) – in value-weighted abnormal returns over the following year. These returns continue to accrue out to 18 months, and do not reverse, implying that far from overreaction, these changes imply true, fundamental information for firms that only gets gradually incorporated into asset prices in the months after the reporting change. As all publicly traded firms are mandated to file 10-Ks (and 10-qs), the sample over which we show these abnormal returns is truly the universe of firms (not a small, illiquid or otherwise selected subset).

 

The importance of following 10K language changes — and using a redlining tool to quickly spot them — is clear. Seeing these linguistic clues ahead of time can help you predict the direction a price will move.

 

What Is GDPR, Which Companies Are Talking About It, and Why?

You’ve probably been hearing a lot about the GDPR, or General Data Protection Regulation, over the past few months. If you haven’t, it’s very likely you have at least been receiving a few emails about privacy policy updates from the software products that you use. If you’ve been researching GDPR, you may have even noticed that the official GDPR site has been so overloaded with visits that it has slowed and sometimes even become unreachable.

So what’s all the fuss about? In this post, we’ll explain why.

What Is GDPR?

GDPR is the European Union’s new data privacy law that was written to further ensure the transparency of companies’ data collection and privacy. It has specifications for businesses around how they handle personal data such as user email addresses and phone numbers. GDPR is only really supposed to apply to the EU and EU residents, but because so many companies do business in Europe, American companies must also show that they are also GDPR compliant — all by today, when the law is officially implemented.

American companies have been updating their privacy policies and explaining, at the very  least, how they:

  • Capture, use, store, and secure user / customer data
  • Capture and use cookie data
  • Capture and use location/mobile data
  • Share user data with company employees, partners and third parties, if applicable
  • Obtain user consent to receive marketing communications

We decided to deep dive into how companies are talking about GDPR and the necessary compliance preparations. We used Sentieo’s DocSearch to search for mentions of GDPR across SEC filings, call transcripts, press releases, presentations, and global filings. We can see below that mentions have definitely escalated over the last two years, especially as we got closer and closer to the date of implementation: May 25, 2018.

 

Sentieo

We also see that there was an initial spike shortly after European Parliament adopted the regulation on April 14th, 2016. GDPR has been in progress for the past 6 years, as the timeline below shows:

  • January 25th, 2012: GDPR proposal released.
  • October 21, 2013: The European Parliament Committee on Civil Liberties, Justice and Home Affairs (LIBE) has orientation vote.
  • December 15, 2015: Negotiations between the European Parliament, Council and Commission (Formal Trilogue meeting) result in  joint proposal.
  • December 17, 2015: European Parliament’s LIBE Committee voted for negotiations between the three parties.
  • April 8, 2016: Adoption by Council of the European Union
  • April 14, 2016: Adoption by the European Parliament.
  • May 24, 2016: Regulation entered into force, 20 days after its publication in the Official Journal of the European Union.
  • May 25, 2018: Its provisions are directly applicable in all member states.

(source: Wikipedia)

We took a closer look at the companies with the most mentions of GDPR. The top five companies included Varonis and Talend, which are both companies that offer data-centric services. Varonis (VRNS) is a leader in data security and analytics, focused on protecting enterprise data. Thus, the GDPR mentions in its documents often refer to the products it provides to prepare its customers for GDPR.

Talend (TLND), a software integration vendor, also heavily referenced GDPR during its May 10th earnings call. Michael Tuchen, Talend’s CEO & Director even mentioned that Talend would even be “assisting Virgin Money UK with meeting regulatory requirements, including the EU’s GDPR.”

IBM had the third-most mentions of GDPR in its documents, and has even conducted a study on the subject: Majority of Businesses View GDPR As Opportunity to Improve Data Privacy and Security. Here is part of their press release about the study that came up in our search:

Last year, IBM itself also began to offer solutions to help their customers become more compliant with data regulations. Here is part of a June 2017 press release detailing those solutions:

 

 

GDPR is definitely inspiring organizations to more closely examine their data policies, especially in light of Facebook’s data breach and consumers’ increased understanding of privacy. We anticipate that most businesses will view data transparency as an essential part of their future strategies. This goal of transparency has allowed for some businesses like Varonis, Talend, and IBM to offer up specific compliance solutions for this use case, since compliance can be a complex process for most organizations without the right support. On the other hand, B2B companies in the software and targeted advertising businesses that derive a significant proportion of their revenues from the EU may face challenges from the GDPR.

As we’ve seen with the example of Facebook, non-compliance and cloudy communication can result not only in legal struggles, but also become a public relations nightmare with which no organization wants to be associated.

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.