How to Analyze Changes to Executive Pay Structures with Advanced Document Search Features

“Show me the incentive and I will show you the outcome”  – Charlie Munger

This classic quote from Berkshire Hathaway’s nonagenarian Vice Chairman is something that fundamental investors need to always keep in mind when analyzing companies. Is your CEO paid to grow sales at any cost? Will she amass generational wealth if she sells the company?

Thankfully, these questions can be answered by a careful review of various SEC filings regarding compensation, and, especially, by noting changes compared to prior years. Analyzing pay is not used only by buy-side and sell-side analysts: compensation consultants, and, increasingly, activist shareholders and political groups have been scrutinizing executive pay. Looking for changes in company filings is easy in Sentieo’s document search which allows users to compare filings to any other filing, filed at any time with the SEC.

For example, here we are looking for changes in Colgate Palmolive’s omnibus executive compensation plan that was previously filed five years ago. We have selected the “All Changes” option in Redlining Mode and compare the recent 8-K filing to a custom-selected 8-K filing from five years ago that we located easily in through our Document Search.

 

How Selective Wealth Management Improved Productivity by 50% With An RMS

Challenges Faced Without an RMS (Research Management System):

With a lean team and a rigorous research process, Chris Devlin, founder of Selective Wealth, wanted a solution that would save him time. He wanted to spend less time trying to find information, and more time analyzing his findings to create more alpha-generating ideas.

Before switching to an RMS, Chris saved notes in Word documents within ticker-labeled file folders on his desktop. This involved a lot of time spent copy-pasting and annotating outside of the original documents, and it was also challenging to keep track of different document types and ultimately build a thesis in a reasonable amount of time.

 

What Is an RMS?

An RMS — or research management system — helps investment professionals organize and optimize their research process with features like:

  • document highlighting & annotation
  • team collaboration on shared notes and documents
  • auto-tagged notes, charts, and tables that are searchable by ticker or custom tags defined by you

 

An RMS Makes Idea Organization Easier in 3 Ways

Chris uses the Notebook, Sentieo’s integrated research management system, “from soup to nuts” in these key ways:

  • His document highlights and annotations get auto-tagged to tickers so his team can stay organized
  • He uses a custom thesis template to speed up and standardize thesis writing across the team
  • He saves hours creating and sharing notes with his team inside the RMS, instead of using Word docs and emails.

Vision Research Achieves 75% Time Savings With Sentieo Collaboration Tools

Challenge

The Vision Research team needed a tool that would allow for thorough document research, but also allow them to quickly organize and communicate ideas across their remote team.

Solution and Results

One of Vision’s clients recommended Sentieo to Robert and his team, and they were immediately impressed with Sentieo’s Document Search, and especially Sentieo’s Notebook research management system.

Robert and his team members have been using various document search tools for over a decade, including Thomson Reuters StreetEvents and Alphasense. However, they now solely use Sentieo, which has powerful search functionality, but also integrates with the rest of their workflow very easily.

Document Search For Idea Generation and More

The Vision Research team uses Sentieo’s Document Search on a daily basis, for a couple of reasons:

• Idea generation – querying certain “buzzwords” or specific keywords and their synonyms (and eliminating false positives)

• Researching an idea that they have already begun, continuing to follow a story

Sentieo has been a timesaver in both of these tasks, allowing the team to experience 75% time savings when compared with previous platforms. The team especially likes the Document Search redlining tool, which allows them to compare language from the same document type from different quarters.

Tables, Export to Excel, and Modeling

One feature that the team was not able to find in Alphasense or other platforms was a table extraction tool that allowed them to extract tables from any document and push them into Excel. Sentieo allows them to do this and more, including the ability to extract and easily compare tables historically over quarters or years. With the Sentieo TableX suite, the team spends 50% less time than it used to on modeling activities.

The Notebook: Collaboration Made Easier

The Sentieo Notebook was the platform’s biggest selling point for the team. Before Sentieo, the team used a shared cloud drive to store files, and communicated information using only hundreds of emails and Excel spreadsheets, which ended up being a very inefficient process for them.

Now the team is able to create notes and categorize them for easy organization across the team. They have created a system where they can share ideas and label them “Reviewed” “Unreviewed,” and more. Everyone on the team can comment, and there is a trail of comments and activities that they can reference at any time.

This is especially helpful because the team works remotely across different offices in Dallas, and some members of the team travel frequently. The Notebook keeps their research all in one place, transparent across the team, and has made for at least 50% time savings compared to their old process.

 

Equity Data Terminal: Financial Data At Their Fingertips

The team started using Sentieo’s built-in equity data terminal because they ultimately wanted to replace Bloomberg, and did not want to have to buy expensive Bloomberg licenses for future junior employees joining the team. Sentieo offers all the quality financial data they need, from street estimates to trading multiples and shareholders data — at a fraction of the price of Bloomberg.

Mobile Apps For Researching Anywhere, Anytime

The team uses the Sentieo mobile app to get instant push notifications about tickers and companies that they are following.

 

 

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.

Memphis Research Finds A Financial Research Platform It Can Trust

About The Customer:

Memphis Research in Memphis, TN

Using Sentieo Since 2016

Memphis Research offers investment research, portfolio management, and consulting services for the hedge fund industry. Chad Gilliland (President) and Will Frazier (VP/Director) started the firm together in 2011 after working together at a hedge fund for some time.

 

The Challenge

Before Sentieo, the Memphis Research team had tried many financial research platforms, including Capital IQ and Bloomberg. All had fallen short of their expectations in a number of ways. They had un-intuitive user interfaces, limited mobile access, and were overpriced — to name a few shortcomings.

 

The Solution and Results

The team came across Sentieo and started a free trial. They immediately saw their fundamental research process improve:

“We feel like the Sentieo team understands what we do better than other platforms do. You are analysts and you think the way that we do. You know how to design the interface, and what you put into the product is not just random. You’ve included the pertinent details that an investment analyst wants to see. It makes a huge difference that the platform is truly built for analysts, by analysts.”

 

Document Search, Redlining, Watchlist Alerts, and News Stream

The Memphis team likes to run very specific keyword searches using Sentieo’s Document Search. They are able to narrow their searches down by document type, down to the document section (ie. “Risk Factors”). One popular use case for them is searching for disingenuous language and other signifiers within call transcripts.

The team also uses the Document Search redlining tool, which allows them to hone in on new document language or accounting numbers that have changed across quarters or over years.

Will and Chad also “follow” tickers in Sentieo by creating Watchlists of the companies they want to track. This allows them to receive immediate updates to their email inbox whenever new filings or financial statements come out for those companies. This is especially helpful to them during earnings season, when time is of the essence.

The team also keeps up with companies using the Sentieo News Stream, which is a feed of the latest social media tweets and articles about the companies they track.

 

 

 

An Equity Data Terminal They Can Trust

Will spends most of his time in the Sentieo Equity Data Terminal. He really loves the EDT’s company summary page, which lists a company’s consensus estimates, valuation and price target, major holders, and much more:

“In the EDT, I can quickly understand the nuts and bolts of a company. I have more confidence doing my research in Sentieo because I trust the data more than I trust the numbers in other systems.”

Will also extracts tables from documents into Excel, and compares them over time using Sentieo’s TableX suite of tools.

 

Staying Organized With The Notebook

Chad uses the Notebook (Sentieo’s research management system) to store his own notes and annotations by ticker, and to search through them as needed.

 

Mobile App For Access Anywhere, Anytime

Chad and Will frequently travel to trade shows, and they use the Sentieo mobile and tablet apps to keep working on-the-go. With Sentieo, they are able to quickly pull up financials and estimates at their fingertips, instead of printing and taking physical 10Ks and 10Qs with them. When listening to management calls, they are able to quickly pull up the expectations for a ticker on their mobile, and compare them to what’s being discussed on the spot. Chad also heavily uses the Sentieo app for the iPad tablet.

 

Conclusion

Will and Chad explained that Sentieo has revolutionized their fundamental research flow and saved them all the time and frustration they felt when using previous tools:

“We definitely positively endorse Sentieo. It’s an intuitive platform for built for the fundamental equity analyst, and helps us filter out the noise and get down to the fundamentals.”

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.

How to Use Web Search Trends In Your Fundamental Research Workflow #2: Using Screener to Find Interesting Trends

Previous post in this series: How to Use Web Search Trends In Your Fundamental Research Workflow: Beat or Miss?

In our last blog post in this series, we talked about predicting a beat or miss with search trends. But there are situations where the data may not work as easily as with that example. So how can you sift through all of the data to find those situations?

Sentieo’s Screener lets you filter from thousands of stocks down to more manageable lists of names to do further work on. The steps below will use the Sentieo Index, a weighted average of alternative datasets that varies by ticker.

First, let’s rank on companies using a Sentieo Index r-squared of over 0.3. This will help find companies whose search trends correlate closely with revenues. We get down to 405 results:

Now perhaps we want to see where these companies are diverging vs. consensus expectations.

Let’s try using our acceleration ranks. This is just a number from 0 to 100, where (>50) means that the data had a positive acceleration, while (<50) means a negative acceleration (or a deceleration). We can simply look for cases where the Sentieo Index is accelerating, with Revenue growth expected to decelerate.

47 stocks is still a lot to go through. You can narrow down further by filter on a sector or even a specific watchlist. We’ve put in our “Cloud” watchlist to cover pure SaaS companies and are getting the following results:

It’s important to sanity-check these numbers by going into the charting interface. If we look closer for $ZEN, we can see that the Sentieo Index suggests an acceleration, while consensus expects a revenue growth deceleration.

View Interactive Chart

Screening is important when harnessing the power of alternative data. It is impossible to manually sift through data trends for each of the thousands of companies that we cover. Screener will help focus your efforts to a manageable list, so that you’re finding the best opportunities and prioritizing your time accordingly.

 

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.

Apple Hits $1 Trillion To Become First Trillion Dollar Company; But It’s Still Not The Most Valuable Company In The World

Today, Apple (AAPL) became the first $1 trillion public U.S. company. Its stock jumped 2.8 percent to $207.05 (as of 9:15 a.m. Pacific), taking its gain to 9 percent since this Tuesday, when it released its latest quarterly earnings. Apple management reported higher than expected quarterly results, and mentioned that it bought back $20 billion of its own shares.

But in spite of all of the press coverage around this major milestone, Apple is not even the most valuable company in the world. That distinction belongs to fellow tech giant Amazon. How can that be, when Amazon’s market capitalization is only a ‘meager’ 887 billion? The key lies in the metric used to measure a company’s value.

Most analysts use “Enterprise Value” rather than market capitalization to measure a company’s value because it accounts for the total operating value of the firm and adjusts for the capital structure of the firm (with equity, debt, and cash). A large part of Apple’s equity value is in the hoard of cash on its balance sheet, which doesn’t reflect the ongoing value of the company. They could use that cash to issue a dividend or buyback shares, but it wouldn’t change how much the actual company is worth based on its potential future profits. In fact, Apple typically buys back shares every quarter.

Amazon passed Apple in enterprise value back in June during its meteoric rise and is now worth $80B more than Apple. Amazon and Apple are just two of the tech giants (dare we say “conglomerates”) that now make up the most valuable companies in the world. We took a closer look at the rest of the tech giants and plotted their enterprise values over time using Sentieo’s Plotter tool.

 

Tech Giants Enterprise Value

Sentieo

Interactive Chart: http://snt.io/c8B2JRXn2

Looking at the chart, we can see that Apple (black line) and Google (red line) had been leading the pack since 2016. However, around February of this year, Amazon surpassed them both to become the most valuable, and after some back and forth, broke away at the beginning of June.

Facebook (blue line) and Netflix (purple line), while also members of the “FANG” group, actually have much lower enterprise value that Amazon and Apple.

 

Regardless of Enterprise Value or Market Cap, Tech Is Taking Over

The more important thing to note is that these tech giants are taking the stage as the world’s most valuable companies, both in enterprise value and market cap. In July, CNBC reported that the majority of the returns this year on the S&P 500 index have from tech giants. The tech companies in the table below are responsible for 99 percent of the S&P 500 returns this year, meaning the rest of the S&P remained almost flat. (Data as of July 10, 2018)

This hasn’t been the case since the last dot-com boom in the 1990s, when Cisco was anticipated to become the first trillion dollar company. We plotted a few tech and oil companies to look at how market leadership has changed over the past 10 years.

The large grey spike in 2008 represents PetroChina’s peak market cap.

In 2006, Microsoft (blue line) had the fourth largest market cap but was still eclipsed by Exxon (orange), GE (black), and PetroChina (gray) — and closely followed by Total (teal).

In 2011, Apple (red) came in third place to Exxon and PetroChina.

But in 2016, Apple (red), and Microsoft (blue), Amazon (purple) and Facebook (green) all took the top 4 highest market cap spots, dissimilar to the situation today.

 

Market Cap: Tech vs. Oil 

Interactive Chart: http://snt.io/aHB2JPRNV

Based on their monstrous market share, we anticipate that the tech giants will rule for a while — unless another unexpected dot-com crash occurs.