Twitter data and financial markets: fundamental and consumer analysis

Monday, 14 March 2016

Twitter has been a key source of news, information, and signal in the financial markets for several years — notably with traders identifying fast breaking news. Since 2013, growth in this area has accelerated significantly with the SEC confirming companies can use Twitter to comply with their fair disclosure obligations (“Reg FD” applies to Twitter), the increasing use of cashtags ($TICKER), and last year’s Bloomberg announcement about incorporating Twitter data deeper into their platform.

Financial analysts, traders, and market professionals are using Twitter to stay abreast of the market and make critical decisions. Over a series of posts, we’ll cover several ways data is being used by market participants — from fundamental and consumer analysis, to event detection, to sentiment analytics, and more. Let’s kick things off with a deep-dive on fundamental and consumer analysis.

Fundamental and consumer analysis

While real-time, fast-moving news can be crucial to some traders and investors, there are many who take a longer-term view on investments and a more fundamental approach to security valuations — including what’s driving product sales and earnings. A growing ecosystem of firms is analyzing Twitter data to provide innovative new solutions in this area.

Expert networks and consumer panels

Eagle Alpha serves portfolio managers and research analysts who are seeking long-term, fundamental insights. By analyzing Twitter data and other alternative datasets, Eagle Alpha has been able to build a digital version of an “expert network” — known on Wall Street as a group of experts with a deep rooted understanding of a specific topic. These networks can be both broad-based and niche, as well as predefined or bespoke. For example, some areas covered include industries like driverless cars, hearing aids, or solar energy, as well as macro topics like the Chinese yuan, EU Commissioners, or Syrian macro analysis.

Consumer panels can also be identified from Twitter data. When the Apple Watch was released last year, Eagle Alpha turned to Twitter data to build a 3,000 person consumer panel to derive early insights that fundamental analysts would use to evaluate consumer reaction to the product. They analyzed topics such as delivery times, battery life, and app feedback. Through this, one notable data point emerged: the panel reported 100% satisfaction with their battery life, which was in stark contrast to the high volume of battery life concerns being reported by the media. Contradicting data points such as this are great information for Eagle Alpha’s customers as it gives them deeper insight into factors that can guide their strategy.

Detecting shifts in consumer behavior

LikeFolio helps investors detect shifts in consumer behavior before these shifts materialize in the stock price. By analyzing Twitter conversations around brands and products, LikeFolio delivers early indicators of change in broad consumer purchase intent for a brand that could materially impact equity price. In one recent example, LikeFolio alerted customers of waning conversation and sentiment around Taco Bell, KFC, and Pizza Hut eight weeks ahead of a poor earnings results for the parent company Yum! Brands ($YUM). The stock was down over 30% from the Likefolio alert to Oct. 7, after earnings. LikeFolio currently tracks approximately 42,000 brands of 3,200 US listed companies, as well as 50 high profile pre-IPO firms, with plans to add Canadian equities in the coming months.

Connecting trending business drivers to investable companies

Similarly, TickerTags believes you don’t have to wait for conventional financial research and news when you can see insights first in social data. They provide a crowd-sourced association taxonomy of tags that parse the world’s conversations on Twitter to connect trending content with investable companies (i.e., “tickers”). The tags can be brands, celebrity endorsers, topics, cultural movements, and more — anything that could be a driver of the business.

In one recent example, dollar store Five Below ($FIVE) pre-announced on Jan. 7 an increase in net sales of 24% YoY for the nine-week “holiday period” — the stock bounced 3% on the news and ended the month up 6%. TickerTags had been reporting on this likelihood ahead of the announcement with tags related to the store and to “Shopkins” toys. Shopkins was one of the hottest new toys in the run up to the holidays. The miniature figurines, with basic packs priced under the $5 sweet spot, allowed $FIVE to capitalize on the craze. Demand for which was evident from Twitter data.

In addition to 350,000 tags across 2,200 US-listed companies and 200 top pre-IPO firms, TickerTags has 27 commodities and the 50 top US municipalities “tagged”, which has natural appeal for commodity and fixed income investors respectively.

Looking ahead

We expect to see increased use and adoption in these areas of fundamental and consumer analytics and beyond equities, to fixed income, FX, and across asset classes. In subsequent posts to the series, we’ll address other areas of analytics and use within financial markets. With global markets starting the year in volatile fashion, we expect heightened interest in the discussion.

For more information about how you can use Twitter data to better understand the markets, check out our website or email us at [email protected].