(By Rich Bieglmeier) iStock recently read a very interesting study titled In Search of Earnings Predictability. In a nutshell, the report authored by Zhi Da, Joseph Engelberg, and Pengjie Gao says that trends for specific products i.e. iPhone on search engines, specifically Google, can be used to gauge upcoming earnings.
It's intuitive, right? If the number of searches for widgets spikes, then it stands to reason that more people are interested in buying widgets. If the number of searches sags, then widgets aren't so hot right now. Search of Earnings Predictability finds that as online queries go, so do profits.
iStock decided to use this newly found knowledge and applied it to the most anticipated product launch for the second half of 2012, the iPhone 5.
Don't make the mistake of thinking that web interest is unimportant. iStock can assure you – with firsthand knowledge – that the largest hedge funds are creatively searching, scrapping data off the web for insights unavailable to retail investors. For example, searching airlines sites for available seating to see how sales are progressing.
We looked back at the search trends for iPhone, iPhone 4, iPhone 4S and the upcoming iPhone 5 in the weeks leading up to the launch. If Da, Engelberg, and Gao are correct, then iPhone 5 is going to disappoint and Apple Inc. (AAPL) shares could suffer.
Using Google's Search Volume Index (SVI), we find that interest was higher in 2010 and 2011 for the launch of iPhone 4 and iPhone 4s than iPhone 5. iStock analyzed the trends in eight countries, the United States, Canada, Australia, the United Kingdom, France, Germany, Japan, and China.
With the exception of iPhone 4S in China, the number of Google searches for iPhone 5 and iPhone, at a similar point prior to the expected launch, are trending much lower. Although there hasn't been a confirmed date, there are plenty of rumors and speculation that iPhone 5 will be available for sale by no later than October.
Interestingly, consumers in seven of the eight key countries googled iPhone and iPhone 4S approximately 20% more than they did iPhone and iPhone 4. You might be wondering, what were the corresponding sales numbers? In the first three days of iPhone 4S's availability, more than 4 million units were sold. Meanwhile, it took nearly a month for iPhone 4 sales to top the 3 million mark. Coincidence?
AAPL owners better hope so. As hype should be building, the trend for searches is falling in all but two countries, Canada and Germany. We acknowledge that web traffic slows in the summer months; however, Google's recent earnings suggest robust keyword searches in April, May and June. In fact, in Google's most recent 10Q, management credits "an increase in aggregate traffic" as one of the reasons for revenue growth.
As you'll see on the table below, once again except for China, peak iPhone plus iPhone 5 queries are running 40% lower than iPhone plus iPhone 4s.
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|iPhone||iPhone 4||Total||iPhone||iPhone 4s||Total||iPhone||iPhone 5||Total||Trending|