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.

sentiment

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

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

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

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

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

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

sentiment

 

 

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

sentiment

 

Sentiment Scores

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

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

Management Sentiment

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

management

 

 

 

Analyst Sentiment

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

 

 

 

Management-Analyst Sentiment Spread

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

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

 

 

 

Conference Calls Sequential Comparison Word Cloud

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

 

 

 

 

Analyst vs Management: Keyword Differences

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

 

Management Top 15 Keywords

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

 

 

 

Analysts Top 15 Keywords

 

 

 

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

crypto interest rates Sentieo

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

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

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

 

Sentiment Analysis

Management versus investor sentiment is diverging.

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

 

Keyword Mentions

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

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

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

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

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

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

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

 

Search of the Month: Retail Same Store Sales Breakdown

This is the second in our Search of the Month series. Check out the first article here! E-mail us at hello@sentieo.com with powerful searches that you think should be featured.

If you’ve ever tried finding details of revenue growth drivers for companies in the restaurant or retail space, you may have found it difficult. That’s because this information is not broken down in GAAP metrics or other standardized financial reporting, but it tends to be discussed in quarterly earnings calls.

Normally, an analyst would need to listen to the call or dig through the transcript looking for these numbers, but using Sentieo they can find it with a simple search and save it for later use.

There are components to retail sales growth that are typically discussed on earnings calls:

(1) Opening more stores and (2) comparable store sales, which breaks down into:

a. Selling more at existing stores (more transactions)

b. Increased pricing per unit (higher average ticket size)

We opened up DocSearch and entered the following query: transactions NEAR10 OR(increase decrease). This brings up references to increasing or decreasing transaction volume along with synonyms. We used NEAR10 because the word transaction might be before or after the indicator of change and might not be right next to it.

We narrowed down our search to mentions within earnings call transcripts:

Sentieo

Then we also filtered down by sector:

Sentieo

We got some interesting results. We found Floor and Decor Holdings (FND), whose team had their Q4 2017 earnings call a couple weeks ago.

Sentieo

Their call included the following mentions of transaction growth:

Sentieo

The quote above tells the following:

  • Comparable store sales increased 16.2%
  • Comp increase was driven largely by transaction growth (more transactions)
  • Transactions increased for the year
  • Average ticket size increased for the year (Prices increased)

It would have been difficult to have found this information outside of Sentieo, but we found it in seconds, with just a few clicks.

The Habit restaurant chain reported earnings on 2/28, and provided even more detail:

The comparable store sales decline of 1% was broken down into a transaction (traffic) decrease of 3% and an average transaction amount increase of 2%.

Searches like these can help you quickly isolate the important information you need and incorporate it into your research without spending extra time poring through documents.

Advanced User? Try These Queries for More Focused Results

If you’re an advanced Sentieo user, you can make this query even more precise by removing synonyms of increase and decrease that could produce false positives for this search. Normally, you would use quotes (“increase”) to search for exactly those words and exclude synonyms, however, this would also exclude stemming, which is helpful for this case. Stemming allows you to not only search for a specific keyword, but also to find the variations of the stem of the keyword. Using our example above, let’s say we want to search all variations of the word increase, such as increased, increasing, increases, but not improve, higher, or growth. To include these words, we’ll need to put carets in front of the main stem keyword instead of putting quotation marks around it (^^increase). These will turn off synonyms but leave on stemming.

The final search would be: transactions NEAR10 OR(^^increase ^^decrease)

Sentieo Document Search Weighs In On The Elliott / Arconic Battle

This article was originally published in Forbes.

Earlier this year, Elliott Management, a $31 billion activist hedge fund led by legendary manager Paul Singer, fought a long drawn out battle with Arconic, a metals engineering and manufacturing spinoff of aluminum giant Alcoa. Among the issues to arise from this fight was a particularly nasty corporate governance revelation about a hidden pension liability that takes effect upon a change in control.

At Sentieo, we watched from the sidelines with interest as the story developed, leaning on our indexed repository of public financial documents to uncover the material facts of this case. Our analysis revealed that potential “corporate governance risk” is a hidden aspect of equity investing that even sophisticated investors like multi-billion dollar hedge funds may not have adequate tools to assess.

Here are the facts (throughout the article below we’ve provided links to source documents in our Sentieo public document viewer):

On November 23, 2015, Elliott filed a 13D with the SEC which indicated that it had built a position of over 5% in Alcoa with the intention to influence the company’s management and board of directors.

On February 1, 2016, the company, still known as Alcoa, announced its intention to appoint three Elliott nominees to its board of directors. In November of 2016, the former Alcoa split into the new Alcoa, a pure-play aluminum producer, with the remains of the old company becoming Arconic, specializing in lightweight metals engineering and manufacturing for customers in aerospace and automotive.

Exactly one year later, Elliott Management published a letter to Arconic pointing out that their attempts to privately coax management into making improvements had not succeeded and they felt the need to move their arguments into public view.

Read More

Amazon Competes With Everyone — And Wins

This article was originally posted on Forbes.

No other company has done a better job of attracting constant media attention than Amazon ($AMZN). With shares hovering around $1,000 per share, the retail-tech giant now stands as one of the four largest companies in the S&P 500 with a nearly $500 billion market cap. That represents a more than 50,000% return from the $1.73 IPO price two decades earlier. Investors fortunate enough to snatch up shares when it first hit the public market can comfortably call themselves millionaires.

While shares no longer look cheap by any traditional metric, money managers believe ongoing investments will result in even greater future returns. This is because Amazon has shown a remarkable ability to succeed in new spaces that it expands into. This is in many ways, the opposite of conventional wisdom. Large corporations often struggle when they stray outside of their core competencies. Amazon has been able to flip this script.

Amazon’s ability to accomplish this comes in large part from the leadership of its CEO, Jeff Bezos, who has consistently pushed the philosophy of, “Day One.” This excerpt from Amazon’s last letter to shareholders illustrates his commitment:

“Jeff, what does Day 2 look like?”That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?

Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”

Of course, the true measure of success for any public company and its philosophy is how its share price performs. As Amazon’s reach has broadened into new industries, the number of companies who need to mention Amazon as a competitor has broadened as well.

We used Sentieo’s advanced document search to construct a query that uncovers every mention of Amazon as a competitor in public company filings (10Ks, 10Qs, 8Ks, earnings calls, investor presentations, etc.) in the last 10 years. In the chart below, you can see that mentions of Amazon have grown considerably over the past 10 years while the stock price has also grown in lockstep.  

Mentions of “amazon competitors” in public filings and AMZN stock price (Source: Sentieo Document Search)

Drilling down into specific sectors, the same pattern shows itself. Take Air Freight and Logistics, a nascent segment of Amazon’s business, for example. It was only in 2016 that Amazon first made an announcement to lease 20-40 Boeing jets to augment their distribution capabilities. If we look at the mentions of Amazon in only Air Freight and Logistics company filings, we again see the number of mentions skyrocket. Read More

Introducing The Sentieo Trump Tracker: Follow The President’s Impact On Your Investments

trump-tracker-facebook-og-image (2)

Today, we are excited to introduce the Trump Tracker. It’s a bot that constantly scans new public financial documents for mentions of President Trump. These documents include all SEC filings, conference call transcripts, investor presentations, press releases, and more. The bot instantly surfaces new mentions of Trump as soon as they’re published, while intelligent queries automatically sort them into topics like Obamacare, Mexico, and NAFTA.

Anyone interested in following the administration’s impact on public companies can engage with the Trump Tracker by checking the dedicated website, following the @trumptrackerbot Twitter account, or signing up for a daily email alert on the site.

The Trump Administration is Now a Stated Risk Factor for Public Companies

When we last wrote about the Trump administration at the end of January, we noted that the markets paid six times as much attention to the new president’s policies as compared to those of President Obama over a comparable time period. Sixty days after President Trump moved into the White House, we see that trend continuing.

The number of regulatory filings mentioning President Trump sharply increased after Inauguration Day on January 20th. We measure a total of over 1750 filings mentioning President Trump from January 20th through March 22nd, 939 of which are SEC documents.

There is a significant change in the tenor of those mentions as well. We see references to President Trump shifting from high-level comments to more formal statements in the “Risk Factors” disclosure sections of SEC filings. Overall, 60% of references to President Trump within SEC filings are in the “Risk Factors” section. This is a substantial increase from the less than 15% we observed during the presidential campaign. This trend is even more pronounced in the healthcare industry, where we find that 85% of mentions since Inauguration Day were contained in these sections.

This shift is illustrated in the graph below:

Each bubble in the above graph represents an industry, while the size of each bubble corresponds to the number of SEC filings mentioning President Trump in that industry. The higher the bubble, the larger the share of those mentions present within “Risk Factors” sections. The dotted line, meanwhile, represents the average share of Trump mentions within “Risk Factors” sections across the market.

As you can see, both the number of mentions and the share of those mentions contained within “Risk Factors” sections has increased significantly since Inauguration Day.

In the months preceding President Trump’s inauguration, only about 15% of mentions were contained in “Risk Factors.” Over the past two months, that number has increased to 60%.

In total, Trump has already been mentioned in the “Risk Factors” sections of 10% of all 10Ks filed across all industries since January 20th.

Why are Tech and Consumer Discretionary so quiet?

We are surprised to find that only 4% of technology companies’ 10Ks and 10Qs filed since January 20th mention Trump at all. Likewise, in the Consumer Discretionary category, only 4% mention Trump.

These industries are reliant on overseas manufacturing and foreign workers, both of which are threatened by the President’s stated policies. We would have expected therefore to see a larger share of cautionary statements. These results, therefore, leave us wondering if management teams are rightfully dismissive or if they are hiding their heads in the sand?

Big Topics, Little Attention

Some prominent topics are largely absent from filings despite having been flagged repeatedly by market participants as a high risk. These include:

  • The Wall: We found only one SEC filing referring to Trump’s wall on the Mexican border.
  • Immigration and H-1B Visas: This is a key issue for many tech companies but also several other industries from Agriculture to anything with a high-street. H-1B visas are not mentioned at all, and Immigration in general is mentioned in only three SEC filings since January 20th.
  • NAFTA: Though Trump has threatened to renegotiate NAFTA, which could threaten American agriculture and associated industries, we find only eight mentions of the topic in SEC filings since January 20th.

Below is a summary table with the results for several key recurring themes of President Trump:

Source: Sentieo Document Search

Methodology

The Trump Tracker is built on top of Sentieo’s powerful financial document search and keyword alert engine. The Bot is constantly scanning through over 9 million financial documents that include SEC filings, conference call transcripts, investor presentations and press releases.

To generate the alerts, we built a series of complex queries that search for the word “Trump” in the proximity to other keywords. In most of these queries we also automatically filter out mentions of some of Trump’s businesses so that our alerts are more focused on real mentions of President Trump. However, the Trump’s Businesses filter allows you to see these mentions.

We plan on adding additional themes and would love your feedback. If you have an idea for a new theme, please email us at trumptracker@sentieo.com.

Banner image of Trump (at top) from AP Images.