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.
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.
The global sports industry is huge, estimated to be around $1.3 trillion. Within sports, the sportswear market is a great place for investors looking at strong brands in a large and growing market.
Recently, the sportswear industry has seen a rise in promotions and discounting activity, as have other segments of the retail industry. A combination of factors such as a decline in tourist spending, slowing foot traffic and a negative consumer spending environment has affected the majority of companies in the space, limiting their growth potential and pricing power. These headwinds, together with the companies’ aggressive expansion plans and excess inventories (as is the case for Under Armour and, in part, Nike), has triggered a rise in promotional activity by many players.
In order to understand the current status of inventories in the industry and to verify the balance between supply and demand, it’s necessary to understand how promotional activity is evolving.
Sentieo’s Mosaic product allows investors to get a clearer idea of how promotional activity is evolving in the sportswear and athletic footwear markets by looking at alternative data, giving analysts a view into the current sources of pressure on gross margin.
Using Twitter Mentions, we can build queries to track the number of mentions of any word or combination of words. Twitter is one of the most important social media networks for businesses, and every brand and third-party retailer in the sportswear and athletic footwear industry promotes on the platform. Let’s go directly into the chart below to see how Nike’s promotional activity has evolved over the past three years.
The chart shows the 30-day moving average for the number of Twitter mentions for promotional activity, including phrases such as “Nike discount,” “Nike 30% off,” “Nike clearance,” and so on. We can see that promotional activity was particularly intense between 2015 and 2016, but declined substantially in more recent times. It has been very slow since the beginning of 2018, reaching a four-year low.
Now that we have an idea of how Nike’s promotional activity has trended, let’s look at Adidas. Adidas is Nike’s main competitor, and its successful expansion strategy for the past few years has diminished Nike’s market share and created more opportunity for other smaller competitors. It has limited the American giant’s growth both internationally and in the domestic market. As we can see in the chart below, Adidas’ discounting mentions were lower during the high-growth phase between 2015 and 2016, while Nike was facing strong competitive pressures and engaged in more aggressive promotion. The situation has changed in the recent past, with Adidas’ promotional activity increasing significantly in 2017 and remaining a bit higher than it was in 2015/2016.
The data clearly shows that the situation has reversed in comparison to last year, and the Adidas brand, for one reason or another, has shown an increase in promotional activity, while Nike has moved in the opposite direction.
Let’s look at another interesting name in the industry: Under Armour. Under Armor has enjoyed years of aggressive expansion with revenue growth rates around 27%-32%, some of which can be attributed to the increasing popularity of its endorser, basketball star Stephen Curry. However, the growth rate plummeted from 21.8% in 2016 to just a bit above 3% in 2017.
Under Armour’s aggressive expansion plans backfired and a strong imbalance between supply and demand generated a steep increase in inventory levels, which reached 23.3% of revenue at the end of 2017, compared with 19.7% in 2015 and 17.4% in 2014. It shouldn’t be a surprise that promotional activity skyrocketed in the second half of 2017, which was a necessary response to the alarming rate of inventory build-up. The chart below shows that mentions of promotional activity reached a historical high in December 2017.
Sentieo’s alternative datasets have allowed us a unique view into key industry dynamics like promotional activity, one of the primary drivers of margin pressure in the sportswear industry.
Investors and analysts should take these insights into account when they assess the attractiveness of the aforementioned stocks; datasets like Twitter mentions can definitely shed light on the probable direction of margins.
While we were looking at promotions, we looked at alternative data to forecast Nike’s next quarter using Google Search Trends data. Google Trends tends to lag Nike’s revenue growth by about a quarter and recent trends seem to indicate that they make not make the growth target for next quarter. It’s still early, however, and the most recent month of data has not fully come in yet.
Last year, we published our first annual list of the top Finance twitter handles. About a year later, we’ve come back with an update to the dataset.
As a financial research platform built for modern analysts, Sentieo incorporates data from the financial realm of Twitter into its product as part of a curated news stream for each ticker. The 2018 list of handles to follow spans people and organizations with an eye for equities, who offer thoughtful insight and tweet often.
We used a data-driven approach coupled with curated selection to uncover the very best, and we go into more detail on our methodology below. Without further ado here are the top 100 Finance Twitter handles to follow in 2018:
To find the 100 best finance handles to follow on Twitter in 2018, we first developed a curated seed list of~120 heavy financial users who are active investors and on Twitter. In order to maintain the privacy of these users, we cannot reveal their Twitter handles, but they effectively constitute a panel of experts.
We created a list of all of the Twitter handles that these 120 folks follow on Twitter. We then aggregated this list to find the handles that are most frequently followed across all of the accounts on the seed list. The popularity ranking represents the number of accounts from the seed list that follow the ranked handle. For handles that have the same popularity ranking, they are ranked by the percentage of that handle’s total followers that are on this list (to adjust for larger accounts).
Of course, no list is perfect, there are definitely some false positives and false negatives in here. Overall, though, we think a user interested in staying apprised on equities would be well advised to follow every user on this list.
Note: this list has a decidedly equities-oriented focus, based on the current nature of our product and our interest in information about individual companies. For a more macro/markets oriented list, check out this post from StreetEye.
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:
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 firstname.lastname@example.org.
As part of our curated Twitter feature in our Equity Data Terminal, we have mountains of data on the most influential finance Twitter accounts. To our surprise, the most influential accounts aren’t professional content creators or major news organizations. Nor are they famous money managers with billions in assets under management.
While many equity analysts currently do not use finance Twitter, the early adopters of finance Twitter likely stand on the vanguard of where news is headed. Firstly, traditional news outlets like newspapers and TV shows must create filler content on a slow news day. Social media is a more flexible channel for receiving news, expanding where there is news (e.g. Trump winning the election) and contracting when there isn’t. Secondly, curation by peers lets the cream rise to the top. Formerly obscure research such as AZ Value’s blog was distributed on finance Twitter well before Valeant issued an 8-k rebutting AZ Value (and before the dramatic fall in Valeant’s share price). That type of niche content is unlikely to appear in more mainstream channels.
As we get ready for 2017 and spending at least the next four years with a Tweeter-in-Chief in the White House moving markets, we often find our client conversations turning towards the effective use of social media in professional investment management. Consider this your cheat sheet.
High Level Takeaways
FinTwit’s most influential accounts are dominated by equity analysts who put out insightful content in their spare time.
Second to equity analysts, there are the activist shorts that use Twitter to promote their campaigns. Like it or not, their ability to move markets makes them relevant and difficult to ignore.
Following the activists shorts, there are niche news accounts (e.g. Activist Shorts, Marketfolly) that mainly aggregate content and curate news specifically for equity analysis. These accounts are far more influential than the official accounts of major news outlets, suggesting that most of finance Twitter prefers the curation of peers and aggregators.
The big picture is that peer-curated news is poised to become a bigger headwind for traditional news. Whereas many newspapers previously enjoyed local monopolies, they now face massive competition in a social media world. This is a world where anybody can create, distribute, and promote their content. There are no barriers to entry anymore. News titans like CNBC and Bloomberg (with their teams of professional journalists) have fewer finTwit follows than a hedge fund manager from Australia who blogs on the side (@John_Hempton). If social media’s popularity grows, the trend will likely continue to erode the returns on capital that traditional media companies have enjoyed.
$LULU is down over 35% since its Q2 earnings print, driven by a traffic-induced comp miss and now increasing fears of sustained markdowns. On the latter we used Twitter data to investigate whether there is a discernible trend in discounting that has persisted during the pre-Holiday period.
We queried the full firehose for tweets mentioning both Lululemon and any derivatives of discounting/promotional activity and normalized it against total tweets mentioning Lululemon, generating the pink line in the chart below. We noticed a significant increase in promotional tweets in Sep/Oct vs. the same period last year (see pink line within the red boxes), agreeing with cautious sentiment for Q3 margins. However, the trend seems to have improved during November with promotional tweets rapidly falling back in line to Nov 2015 levels (see pink line within blue boxes). With sentiment so low and largely elevated markdowns priced in, a return to normalization in November could be enough to provide some relief.
Want to see a similar analysis for other consumer names? Contact us at email@example.com!
Finance Twitter (or FinTwit) refers to the community of Twitter users that talk about stocks. The wonderful thing about finance Twitter is that it curates unique investment insights that would be difficult to find elsewhere. It’s a great way to find out about original research from the blogosphere, such as John Hempton’s work on the functionality (or lack thereof) of Flotek’s iPad app. Hempton’s blog post immediately caused $FTK stock to fall by more than a fifth, highlighting the growing ability of bloggers and activists to move markets. If you want to stay on top of all market-moving information, you should start thinking about Twitter.
FinTwit is also a great source of news, analysis, and stock ideas. Many Twitter accounts like @ActivistShorts and @ValueWalk will post news geared specifically towards equity analysts with a narrower focus than mainstream financial news outlets like CNBC. Portfolio managers, analysts and serious individual investors will post news updates and analysis on companies they follow. Many analysts will post elevator pitches of their stock ideas, looking for feedback and criticism. And it shouldn’t be surprising that many activist short sellers use Twitter to disseminate their campaigns, some of which spice up your stock quotes.
Here’s our guide on how to get started with Finance Twitter. We’ve categorized the most popular FinTwit accounts to help you follow whatever it is that interests you the most. Read More
On Friday we wrote a blog post predicting a deterioration in $NFLX’s domestic and international businesses after analyzing web & social data available through Sentieo’s Mosaic offering. Yesterday $NFLX did indeed miss top and bottom line numbers and lowered guidance on quarterly net additions for both domestic and international segments, with management, largely blaming ”un-grandfathering” of lower prices. Management even used Google Trends to illustrate increased awareness of Netflix price increases un-grandfathering in their presentation and blamed increased media coverage for deterring new members.
We used Sentieo to take a closer look and found a profound result- Netflix has had three previous mentions of price increases un-grandfathering and each mention has consistently led to large decelerations in consumer interest and revenue growth. Put another way, yesterday’s miss and messaging is hardly a new phenomenon and suggests this is a structural headwind, meaning Netflix has much less pricing power than bulls (and management) have hoped for.
In the chart below we track social mentions of “Netflix price increase” via both Google Trends (green) and Twitter (black) as well as YoY growth in Google Trends searches for Netflix (dark blue dashed line).
Notice the red boxes here indicate social mentions of price increases and in each case we see immediate deceleration in Google Trends growth. With “un-grandfathering” only half-way through, $NFLX will continue to face a significant membership growth headwind over several quarters, as traffic continues to be impacted by perceived price increases. This could be an even longer-term concern if, in the face of rising competition and content costs, $NFLX’s ability to raise prices is impeded. Sentieo’s Mosaic service can be used to analyze real-time trends in a number of consumer, Tech/TMT, and healthcare companies. Using Mosaic, you can keep a real-time pulse on consumer interest for the stocks you follow, yielding better decision-making and better returns. Simply go to Sentieo.com and sign up for a free trial. If you would like to continually receive content related to topics of interest in the markets, don’t forget to subscribe to the Sentieo Blog so that we can notify you of new posts by e-mail.
$NFLX bulls are in for a bumpy ride. With slowing domestic membership growth and rising content costs, the bull thesis is hinged on success abroad. Management’s language is already reflecting this — just look at the latest red-lined 10-K (image below) in which the words “domestic streaming” were removed from a discussion on growth drivers:
Nothing on this website should be considered investment advice. We do not make recommendations (long or short) in any securities. We do not express opinions as to whether any company's accounting practices are in violation of SEC, GAAP, IFRS or other rules/regulations.
Notice: Undefined index: viewedExitPopupWP in /var/www/html/wordpress/wp-content/plugins/exit-popup/exit-popup.php on line 157