Wednesday, 8 February 2017

Investing With Google Trends - A Fitbit Case-Study Or What To Expect From Q4 Earnings Release

Summary

Google Trends can be used to calculate the revenue based on the search volume in different quarters.
The companies and their products should match some criteria like being for the end-consumer, not being an everyday product and they should preferably be bought online.

Using different search parameters will lead to different results, but surprisingly the search without any fancy parameters and additional factors leads to the best and most accurate estimate.
 Based on our calculations we expect a revenue of about $740 million for Fitbit’s past quarter.
The idea to use Google Trends for investment decisions is not really new and there are articles about it on the web as well as here on SA. Data provided by Google Trends can be used for investment decisions as they are available for everyone. Additionally, there is data available for almost every topic that can be searched for online (which is basically everything). But most of the articles I read so far on the topic of Google Trends and investing describe rather how to use Google Trends as a sentiment indicator. They are mostly about the stock and less about the company itself. Very often the topics discussed are about when to expect a top or a bottom and not so much about predicting future growth of the company or predicting revenue.

Instead of stock movements, we want to prognosticate revenue before quarterly earnings have been published and we use the example of Fitbit (NYSE: FIT) for our case study. In a first section we examine which companies can be analyzed by using Google Trends and why Fitbit matches these criteria and is therefore an optimal candidate. In a second part we are looking at different data from different ways to search on Google. In the last section we are going to estimate revenue for the upcoming Q4 earnings release in February (actual date is unknown so far) and maybe offer another piece of information to decide whether you should invest before earnings are released.

Why Fitbit?
Although we theoretically can use the search volume of every company listed on the stock exchange it goes without saying that not every company or every sector is suitable for investment decisions based on Google Trends. In the following section we will present five criteria to determine which companies we can use and for which companies we should rather not make investment decisions based on Google Trends. We will also examine if Fitbit matches those criteria.

Published  on  seekingalpha

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