At my firm CoRise, we are very interested in the changing capital markets (see our post on the convergence of media & finance here).  I agree with many others that the traditional views of markets, capital access, and information are all changing right before our eyes.  Howard Lindzon of StockTwits has written about the influence of the Industry pundits on research, weakening the market’s reliance on research from Wall Street firms.  Ian Sigalow of Greycroft has written about the new “kingmakers” of companies shifting from investment banks to prominent VCs.  We continue to think about how new market places, technology, information dissemination, and social media are transforming how markets trade.  Many models have been developed around this trend, from companies like eToro and RoboInvest, where an individual can follow a portfolio manager. Crowdfunding and the JOBS Act are changing how nascent companies raise capital.  StockTwits provides a whole social commentary and data around stock sentiment and expectations.

As a former investment analyst, I am always wondering how new forms of technology can provide any insight into what the markets are thinking about a stock and whether a stock is better or worse positioned to rise.   Of course, whatever new technology I looked at, I would always use it as just a piece of my investment mosaic.  In fact, one data point can merely be an indicator of where I needed to further research to verify my investment thesis.

As part of my investment thesis process, I used to look at not only the official estimates coming from First Call, but I’d also gather the “whisper numbers” to see where investors (ie “the buyside”) were as well.  “Whisper numbers” have a derogatory connotation, implying that the actual results have been pre-disclosed to some investors ahead of time.  However, in practice, the term “whisper numbers” really means estimates that investors are deriving themselves based on their own work on the stock.  This “whisper estimate average” can be very important, as it can shed a light on what the crowd thinks vs just the investment banks.  This leads me to thinking how can i harness a social network for additional insight?

Estimize is a social network where investors and independent boutiques enter in their own assessment of what they think a company will earn when it reports.  The consensus can differ significantly from the official Wall Street investment bank estimates (ie First Call) – in a sense, Estimize has built an Internet based “whisper number” aggregator, replacing the need for investors to manually call around to each other to compile their own average estimate.

This sounds great in theory, but how about in practice – If I look back over the last 7 quarters for $AAPL (ie back to FQ4 ’10), Estimize’s consensus EPS estimate has differed from the actual EPS result by ~8.5% vs Wall Street’s estimates have differing by over 17%.  So, with Apple’s earnings rapidly approaching (7/23), lets see what Estimize’s community thinks.  While the Street is looking for $10.32 of EPS, it seems the community is looking for $11.42, or ~10.5% higher.  On revenues, the community is looking for ~5% higher, estimating $39.2b.

So in summing it up, it looks like the crowd is calling for a better quarter from Apple than the Street thinks.  However, there don’t’ appear to be any anomalous variation from historical differences, implying that any such beat wouldn’t be egregious.  As I mentioned in the beginning, while incorporating social media data can be insightful, this is merely one data point in an investor’s mosaic.  However, should intra-quarter data in a quarter indicate an anomalous diversion from historical differentials, it could provide a clue for an analyst to dig deeper.  With that, let’s see how the results come in…..

Disclosure: I am not personally predicting Apple’s quarter and have no position in AAPL or any securities mentioned.

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