How Far Is Wall Street Behind The Consumer?

We are looking for shifts in consumer behavior that will have a material impact on company sales and earnings reports in the future.  At LikeFolio, we do that through the mining of social-data.  

Here's How It Works:

1. People start tweeting more and more (or less and less) about their intent to purchase a product (this is called social volume)

2. We determine if there is statistical significance…and if so…

3. We wait

Now– #3 is where a lot of people get in trouble.  No one likes waiting, and no one likes losing money.  

But there is a lag between shifts in consumer enthusiasm and the impact on sales. That's what gives us an edge.  We have to respect that.

Here are a few examples of how this has played out:

1.  Bebe Stores, Inc. BEBE stores saw a big spike in social sentiment and social volume last year during the holiday shopping season.  We saw it.  A week or so later they reported same-store sales that were up big, and the stock rallied huge.  That was a small lag.

2. Netflix, Inc. NFLX has been showing signs of losing its luster with consumers for quite a while.  In fact, prior to the last earnings call, we put out a note that things didn't look good.  The stock was at $100.  It went up to $120, and is now back near $100.  The lag there is longer.  We still think the data shows Netflix isn't getting the organic growth they're used to.  We're still letting this one play out. Long lag… negative trade so far… lots of patience required.

3. Etsy Inc ETSY showed a massive uptrend in social data and extreme levels of positive sentiment.  A few weeks later, Google announced on their conference call that Etsy was a big beneficiary of Google's new algorithm.  Etsy stock surged and LikeFolio clients made a lot of money.  That's a pretty fast lag— but it came from a completely unexpected source (Google).

What's All Of This Tell Us?

Social data is an amazing, incredible tool for determining what's happening on Main Street.  How people are reacting to products and brands owned by publicly traded companies.  

There is a lag between those social signals and the impact of those shifts being felt on Wall St.  That's our opportunity.  But it's also difficult to predict HOW that news will be transferred to Wall St or exactly how long it will take.

In fact, we have determined the best way to use social data is through the use of a rolling moving average compared to itself (and peers) over the past year. That's the way our professional trading clients utilize our data.

Whatever you do, you want to give your trade time to materialize… which could mean tomorrow or the earnings report after this one.  

Bottom Line

Stay small enough with your trades that you can remain patient.  Give trades at least 90 days to materialize (unless of course the social data you based the trade on becomes obsolete).  

We're ahead of Wall St sales/earnings reports and most analysts.  How far ahead isn't always known… but it can be really fun and profitable to find out.

– LikeFolio provides research on companies based on purchase intent and sentiment data gathered from consumers on social media.