CAN INVESTMENT BANKS FIND LUCRATIVE IDEAS THROUGH ONLINE INTELLIGENCE?

By Emmett Kilduff, CEO and Founder of Eagle Alpha

It’s no secret that more bulge bracket trading desks are turning to online intelligence – namely social media – to gather trading ideas and a potentially lucrative edge over the market. Yet, with pressure to generate higher revenues persisting in light of a poor Q4 earnings season, other areas of major investment banks will start following the trading floor’s lead.

For research analysts and corporate financiers in particular, online intelligence – ranging from social media posts, videos, to review sites and message boards – offers a new level of depth into the companies, sectors and marketplaces they cover. It also contains an element of real-time, on-the-ground insight that conference calls or analyst reports often can’t match.

Finding unique, revenue-generating ideas is tough when almost every other analyst and corporate financier is talking to the same company executives or listening to the same calls. Those select few that currently have access to online intelligence – and the wealth of information on consumer sentiment that it holds – are uncovering unique ideas that can potentially drive more business.

Research Analysts

Bulge-bracket research analysts are being pressed to grow business by producing higher-impact reports for buy-side clients while generating ideas for other departments. Here, the web is providing an untapped channel for on-the-ground insight around individual companies and the market segments they serve.

For example, Bernstein analysts have recently turned to Twitter to better gauge the reception of supermarket vouchers among UK consumers,. Using specific search tools, they found that Twitter provided a qualitative snapshot of how and why consumers were utilizing vouchers and, more importantly, which supermarkets these sentiments were aligned to. Not only did they gather a better understanding of the consumer mindset from behind their desks, they also included a valuable non-traditional insight in a research report regarding Morrisons, a UK retailed, on 28^th August 2014.

In a similar vein, the web can uncover instant reaction on key events. Take the launch of discount supermarket, Netto, in the UK. Retail-focused journalists and independent analysts were tweeting as soon as they walked through the automatic doors. Their reactions were being captured first hand. Additional information could also be drawn from Facebook and chat forums. Social media effectively eliminated the long time lag between their initial reactions and publication of their reports or articles, providing research analysts with immediate insight.

Corporate Financiers

The corporate finance department has to have its finger on the pulse to continually increase shareholder value and ensure capital is raised to create, develop, grow or acquire businesses. Relying on gagged reports means fundamental detail is missing. Without online intelligence, corporate financiers aren’t able to gather all the information they need on activity around M&A or perceptions around competitors.

For example, take the telecoms industry. The UK market, unlike the rest of Europe, sees most homes pay for, at most, three services from a single provider – internet, landline and TV. But now there’s a fourth element, mobile.  This is incredibly interesting from an M&A perspective. Mobile companies like Vodafone and EE are likely to acquire to bolster their offering in 2015. The web can offer all sorts of insight on the potential suitors for this deal. Website analytics, customer review sites and blogs are able to provide views on the possibility of an acquisition.

Today’s barriers and tomorrow’s opportunities

So why haven’t more corporate financiers and analysts tapped into the web for intelligence? Simple – word of the usefulness of online intelligence is just beginning to spread across Investment banks.

There is also the issue of being able to separate the valuable information from otherwise wasteful content. Here, curation is important. Banks need intelligent resources to be able to dictate who is worth following, implement the appropriate filters and flag relevant developments as and when they happen.

The skill set needed for this level of curation includes a mix of data science, data engineering, the ability to translate languages. Bulge-bracket banks are working to attract more of this talent, but candidates are in short supply.

Meanwhile, the amount of actionable intelligence on the web will continue to grow. Videos are an interesting area, growing both in sheer volume as well as the number of expert voices within them. These range from influential media and bloggers capturing customers’ reactions to a product/service launch to experts sharing their take on new products.

Eventually, we could see investment sales teams follow suit, utilizing online intelligence to offer non-traditional color on stocks and macro plays. But before that happens, research analysts and corporate financiers must continue embracing online intelligence as an emerging, valuable source for business-generating ideas.