Glenn Chan's Random Notes on Investing

Google Trends

GlennC
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Google Trends may be an interesting tool for investors.

  1. It allows investors to gather data on a company that’s fresher than the last quarter’s earnings release.  This can be helpful in turnaround situations such as Aeropostale (ARO) and Cafepress (PRSS).
  2. Having leading earnings indicators can be helpful for manufacturing companies (e.g. RGR, SWHC) where there is not much data on consumer demand due to fluctuating inventory at the retail and distributor level.
  3. In rare cases where fraud is suspected, Google Trends may provide some indications about actual revenues.

Here is an example of Google Trends in action:

The lines on the chart are colour-coded to match particular years.  This makes it easy to compare search interest from year to year.

To the left of the chart, there is a bar chart for the average interest for a particular year.  Sometimes, this bar chart can be misleading if search interest follows seasonal fluctuations.  In this case, Aeropostale has higher search interest during the Christmas shopping season as well as back-to-school.

Some interesting Google Trends

ARO: It seems that the turnaround is not working.  For whatever reason, Aeropostale’s peers like ANF and AEO are also seeing their search interest and revenues decline.

PRSS: Cafepress is an interesting turnaround situation because the company’s founders have returned to fix the company.  The stock is arguably cheap because the company has sold off assets for cash.  However, the original core business seems like it may be faltering according to Google Trends.  I need to do more work on this company.

Some gun manufacturers (RGR, SWHC) look like they will see a weak Q1 2015 in terms of ultimate demand from the consumer.  VSTO‘s Savage Arms is bucking the trend.  Savage Arm’s recent resurgence may (or may not) be due to its $100 cash rebates.

Pandora (P) is interesting because Google Trends is indicating a rapid decline in interest while the competing Spotify service has seen dramatic interest growth.  Pandora’s SEC filings report high growth in revenues, active users, and listening hours.  There is a very big disconnect.  Because I have not done much work on Pandora, I do not know which set of numbers to believe.  I have no position in Pandora.

Nimble Storage (NMBL) has a small disconnect between its Google Trends data and SEC financials.  To be fair, its Google Trends data may be wildly inaccurate due to the small sample size.

Herbalife (HLF), Nu Skin (NUS), Coach (COH), and Lululemon (LULU) are some stocks in the headlines that have seen their search interest decline from last year.

Problems with Google Trends

  1. Search interest may not correlate with revenues.  For example, one-time events at Lumber Liquidators (a 60 Minutes segment) and Lululemon (see-through yoga pants) have caused traffic spikes.
  2. The trend may not be accurate, for the same reasons as #1.
  3. Useless China data because Google search is banned in China.
  4. If a company has multiple brands and product lines, you may need to aggregate data for searches from all of those brands and product lines.

Verifying revenue

I would absolutely love to figure out a method of easily verifying a company’s revenues where fraud is suspected.  Unfortunately, I don’t think that it can be easily done.  For example, the Crazy Eddie fraud took steps to avoid detection.  The company intentionally overpaid its taxes so that its numbers would not raise a red flag.  I believe that other frauds can overpay credit card processing fees, contingent rents, etc. etc.  They may also manufacture fake sales return data and other numbers reported in their 10-K that should track revenue.  To detect inflated revenues, having independent data is incredibly useful.  However, the problem with independent sources is that most of them are inaccurate.

US import/export data may be a good source of independent data.  However, I have not figured out a way to extract accurate data on the volume of goods imported by a particular company (without paying for a commercial service).

Google Trends can sometimes be inaccurate.  Other sources of web traffic data like Alexa, Compete.com, etc. can be even more inaccurate due to various problems with:

So far, it seems that Google Trends is the least inaccurate source of independent data to verify a company’s revenues.

Other modes

Google Trends can also look at interest in particular countries.  For example, Michael Kors has growing interest worldwide.  However, its American search interest is roughly flat.

This might indicate that Michael Kors is close to saturating the American market (or may not be performing as well in the US).

(*I am long KORS.)

Appendix: a collection of some Google Trends results

Handbags

Guns

MLM

Luxury goods

Apparel

Post production software

Furniture retailing

Subprime retail

Retail

Misc. technology

Malone complex – music

Malone complex – video content

Hot stocks

VMWare (VMW)

virtualization

Consumer products

EDIT (6/10/2015):  One example of Google Trends tracking poorly with revenue is the online game World of Warcraft (publicly-traded ATVI owns a stake in the game).  Various websites such as this one summarize WoW subscriptions.  Here is the Google Trends for WoW.

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