How does a business’ branding correlate with search results?
Alternative analytics are a vogue topic among analysts. You can now draw on a range of metrics to give you the inside track on a company’s performance, from its employee turnover and Glassdoor ranking to its SEO ranking.
Yes, attaining the coveted top spot in google search rankings, which has spawned an entire service industry, has a correlation with stock outperformance according to a recent study by Printkick Media.
Analytics providers such as Alternative Data incorporate such web traffic data into their investment insights package, for all 2,500 LSE Tickers and their subsidiaries; together with other indicators of customer engagement with the company like publicly available data on ecommerce transaction volumes, app usage, and email traffic.
Alternative analytics have increasingly become tools of all savvy investment professionals, whereas blackbox analysis used to be the preserve of exclusive funds charging high fees. New hedge fund launches stood at just 561 in 2018, the lowest number since 2000, according to HFR, the data provider.
A recent survey by Deutsche Bank of 425 institutional investors running hedge fund portfolios delivered average returns of 1.6% in the first 11 months of 2018; the expectation was for 7.2%.
In a market crowded with smart analytics packages, it is difficult to justify 20% management fees and if you cannot deliver promised returns how can you expect investors to put up with strict gating clauses for a year or more.
SEO Tricks to Boost Your Stock Price….
Printkick Media looked at the correlation between Google trends and stock price for a sample of FTSE 100 companies. One of those they chose to highlight was Google, which had a 0.823 correlation.
With blockbuster stocks like Google, there can be a positive correlation between search volume and stock value. It is one of those high performers which is a victim of its own success, as investor sentiment seems to drive the stock up independently of less esoteric factors like debt to equity ratio or yoy growth.
The type of search terms entered in relation to a company’s name are the real indicator of where investor sentiment is headed. Another case study the report cites is that of Associated British Food, seen as a relatively safe bet with a high debt ratio it has under control. However when for example ‘debt’ increases in search frequency from one week to the next, this is associated with a negative public image and either follows or is the precursor to bad press and falling stock value.
However, where the increase in search rankings is associated with a concerted rebranding campaign, as in the case of Thomson Holidays, there is a high probability that an uptick in profitability and stock value will ensue.
An analyst at Printkick elucidated:
“Originally known as Thomson Holidays, the holiday company decided to undertake a total rebrand, becoming TUI, in 2017. CMO Kate McAlister explained that upon rebranding, their brand awareness increased by 36% in under one year.
As indicated in the graph, 2017 saw a boom in stock prices and google searches — a clear correlation. this is a perfect example of the positive effect branding can have on a business’ stock price and google search.”
Pitfalls of Chasing the Profit Wagon….
I talked last year to Professor Lanvier of the Toulouse School of Economics who was delivering a talk on alternative analytics. He has recently co-authored a research paper on the ‘Sticky Expectations and the Profitability Anomaly’, the market phenomenon by which companies with a history of solid returns outperform relative to market beta, to a degree that lags their sales and EBITDA performance.
Managers often extrapolate current trends such as high dividends or a high profitability ratio, and assume the trend will continue roughly unchanged. Big data analytics is helping to fill in the information gaps the annual or quarterly report cannot shed light on, says Professor Landier:
“There are literally hundreds of companies now doing different data analytics, providing a black box of what’s going on inside a company.”
Some examples of new previously untapped data sets include supplier-customer engagement data, like a company’s Facebook or Twitter following and the level of interaction. Or satellite data on transportation, to foresee delays in shipping or trucking before they are public knowledge and affect the market.
The Professor is especially interested in data on the quality of human capital a company holds; high employee turnover also indicates a firm-wide problem in holding onto skilled employees. It is possible to gain insight into a firm’s ability to retain its human capital by analysing where a large number of employees are updating their LinkedIn profile in preparation for a job move. Or, more simply, by interrogating their GlassDoor ratings.
“This tendency has been recorded through observing analysts’ forecasts and also through experimental settings. Observable cognitive biases are the subject of two of my upcoming papers for the Journal of Finance’.