Wall Street Removes Consumers of Herbalife from “Mute”
The market as we know it efficiently adjusts the price of equity securities to reflect quarterly financial performance, and both positive and negative company press. At Crimson Hexagon, however, we contend that the market is inefficient in capturing the aggregate voice of the consumer. Most financial institutions today are numb to this voice and, as a result, evaluate an incomplete view of firms and industries. We have found that the drivers behind consumers’ bullish and bearish sentiment are hidden in pools of unstructured data.
So how can financial institutions gain clarity on hotly-contested stocks, and quickly discover that 92% of actual consumer opinion on Herbalife is favorable? We discuss our analysis methodology and its complementary nature to traditional due diligence below:
In this case, we explore Herbalife, a multi-level marketing company that sells nutrition, weight management, and skin-care products. Herbalife has made news in recent weeks for being at the center of a public “smackdown” between prominent hedge fund managers Bill Ackman (Pershing Square Capital Management), Carl Icahn (Icahn Capital Management), and Dan Loeb (Third Point). Taking opposing sides, these individuals dispute the value of the company and have made massive bets in both directions. While Icahn and Loeb are bullish on their Herbalife positions, Ackman issued scathing criticisms of the company, claiming that Herbalife is the “best-managed pyramid scheme in the history of the world.”
Despite the proliferating financial news and questions raised on both sides, what strikes us most at Crimson Hexagon is that little information has surfaced about the customers of Herbalife—people who actually use the products.
Could this information have influenced their investment decisions?
Using the Crimson Hexagon ForSight™ platform, we analyzed almost 56,000 relevant posts about Herbalife over a 10-month time period.
First, it is important to note that the online discussion of Herbalife has many dimensions. Promotional content from Herbalife and its distributors, as well as financial news and other business-related discussions, are voluminous in social media, collectively representing 60% of the total conversation. But our inquiry doesn’t stop there.
Aggregate analysis of the consumer voice enables us to expose another dimension of the conversation. After pulling back the curtain on the rich, nuanced consumer dialogue, we found that 92% of consumer opinion on Herbalife is favorable. In particular, consumers identify strongly with Herbalife’s healthy lifestyle image (41%); many cite specific health and weight loss benefits (34%), and some even express purchase intent (17%).
Only 8% of the conversation is critical of Herbalife products and sales representatives.
Over the last three months, Herbalife conversation remains very positive; to the market, however, these opinions remain shrouded behind a cloud of mass media. In fact, we see news-related discussions peak around major events in this Herbalife “smackdown”:
Dec 20. 2012: Bill Ackman argues Herbalife is “the best-managed pyramid scheme in the history of the world,” and discloses he shorted 20 million shares
Jan 9. 2013: Dan Loeb discloses he acquired 8% stake in Herbalife
Jan 25. 2013: Carl Icahn challenges Bill Ackman on CNBC, and defends Herbalife as a strong financial performer
Feb 14. 2013: Carl Icahn purchases 13% stake in Herbalife
The Crimson Hexagon ForSight™ platform empowers B2B financial institutions to complete new market research on public and private companies in a matter of hours. Through deep analysis of social data, these organizations can gain a more comprehensive understanding of individual firms, industries, and their most dynamic stakeholder—the consumer.
Social media analytics empower fund managers, financial analysts, and investment bankers to gain a more complete picture of portfolio companies and potential investments. The ability of financial institutions to make sense of this information, in a timely manner, can add an important layer of due diligence conducted for market analyses, company valuations, and other strategic investments.
If you want to learn more about these findings, download our complimentary Wall Street Aggregate Consumer Voice ebook.