#$bebe

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 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 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 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. 

...much different that 200-1000 point swings earlier this week amid China growth fears, in what was a very busy and hectic time week. There was certainly a lot of data/macro news over the past two weeks moving markets (U.S. economic data/stock market tantrum/impact of China yuan devaluation), and several opposing views from Fed members today ahead of the Jackson Hole summit this weekend…leaving question unanswered as to a rate hike possibility in September, or in December, or this year at all (or next).

With several important data points upcoming (Aug jobs data next Friday), it’s probably safe to say that no possibility is off the table. With that being said, today’s action was more of a wait and see approach ahead of the summit in Jackson Hole. The volatility index (VIX) closed up 2% at 26.71, down from high of 53 level on Monday.

Last month I had the good fortune to appear on Yahoo Finance and explain how LikeFolio uses social data to look for investment opportunities.

I was able to highlight two different ways LikeFolio digs into social streams for clues about the way brands and products are being received in the marketplace:

1.  Sentiment Tracking -- Do people like it?

When consumers get very positive or negative about a company's brands, we take notice.  Especially when that change is unique vs. industry peers or against its own history.

Such was the case with bebe stores.  As I explained on the show, we saw that bebe mentions during the holiday shopping season were far more positive than those of other teen-retailers like Abercrombie.  

Just a few days later, we woke up to the pleasant news that bebe stores experienced better than expected same-store sales growth.

Here's what the stock has done since:

That's a nice 50+% gain in just one month... all because investors are now seeing exactly what social data was telling us:  People are starting to really like what bebe is selling!

2.  Mention Volume -- Are people talking about it?

The other big indicator for us is volume-- how much are people talking about the brands this company makes? For this, I used Disney as an example.  Over the holidays, we saw mentions going through the roof for the movie Frozen and all the toys it spun off.  In fact, it was so crazy, we actually saw mentions for Frozen dolls outpacing Barbie dolls.  Barbie being unseated by dolls from a movie that was released a year prior is just insane.

Obviously, we knew Frozen was an even bigger revenue-driver than Wall Street anticipated, and could lead the company to a positive surprise for the quarter when earnings came out.

Last night Disney announced better than expected earnings on the back of -- you guessed it--- sales of "Frozen"-related products, boosting the stock nearly 5% overnight to a new all-time high.

Our favorite quote:  "Frozen" toys sold particularly well during the holiday shopping quarter, helping Disney's consumer products unit earn a $626 million profit, up 46 percent from a year earlier.

Putting it all together

Social-data tells us lots of things about the way consumers are reacting to the brands and products that companies make.  Two of the most powerful are sentiment (how much they like the product) and volume (how much they're talking about it).  

As I said on the video, this isn't a magic bullet.  There's no such thing in the stock market.  But what social data can be is a unique, consumer-driven indicator that gives us significant clues as to how the marketplace is responding to the stuff a company makes and does....and that's powerful stuff.

Target ($TGT) is getting unusually high volume of tweets about its stores this week, propelling it to #8 on the LikeFolio Trending Brands list.

So far, positive sentiment is holding steady for the company, so this could be a sign that more people are heading to Target stores than usual for this time period.

For a moment, I want you to think of Twitter--- all of twitter---as a massive brand survey.  But instead of calling 1000 people and asking them what they think, we sit back and listen for millions of people to tell us... naturally, voluntarily, and in their own words.  

There are lots of ways to slice that data, and today we're going to focus on one of my favorites:  Social Sentiment.

Social Sentiment is a powerful predictive indicator that can give clear signals about shifts in real consumer behavior.  We calculate it by looking at the percentage of opinionated brand-mentions that are positive in nature (we ignore neutral tweets in this calculation).

Powerful stuff if you know how to harness it.  Which we do...

Two months ago I tweeted out some insight into how social data can be used to identify brands and companies that are doing better than their peers:

Social Sentiment: 80% positive should be your Mendoza line. That's a key break-point in @LikeFolio data between hated and loved brands.

— Andy Swan (@AndySwan)

November 10, 2014

I then provided an example of how bebe stores (how do you say that?  Baby?  Bee Bee?) was outperforming peers in a huge way:

Example: In past 7 days, 95% of tweets about $BEBE brands/products were positive, while $ANF was down around 75%.

— Andy Swan (@AndySwan)

November 10, 2014

The next day, I bought the stock:

BOT $BEBE at 2.36... pic.twitter.com/5iQ38JzHwk

— Andy Swan (@AndySwan)

November 11, 2014

As you can see, the social data is playing out as expected:

Today bebe announced increased sales at the store level, and the stock is reacting nicely in early trading today:

That's a 26% gain in two months!  Based on what social-data was telling us BEFORE the company reported it and analysts had time to react.

That's the power of social-data.  We KNEW that customers were positive about bebe compared to peers, and we knew that store traffic was likely higher than prior periods.  All based on listening in to the select moments of signal that all of that Twitter noise provides to us.

Social Sentiment FTW.

By the way -- retail is currently one of the most exciting sectors from a social-data perspective.  We have our call on Amazon and Wal-Mart working, and are starting to see several opportunities among smaller, more traditional retail brands.  

As always, the LikeFolio Top-50 is a great place to start looking for the next social-data winner.