Behind every stock analyst’s financial forecast report is a detailed data model that tracks the company so that they can arrive at a view on that asset. Until about eight years ago it was difficult to prise open those reports to understand the thinking behind the headline numbers.
Visible Alpha helped change that. Founded by 12 large investment banks, the company leveraged the information contained within those banks’ forecasting models and presented in a way that gave market participants a much more granular view of market expectations.
After Visible Alpha’s acquisition by S&P Global in May last year, the consensus estimate aggregation product has been incorporated into the data and ratings giant’s S&P Capital IQ Pro. Now part of an upgrade of S&P’s flagship investment platform, Visible Alpha is poised to serve not only its traditional client base of institutional asset managers and hedge funds but also “adjacent market segments”, such as investment banks, private equity investors, professional services firms and corporates, said Global Head of Visible Alpha Rodney Pedersen.
“We felt that the combination of Capital IQ Pro and Visible Alpha would unlock the opportunity to create seamless additional value for those market segments where Visible Alpha hadn’t participated before,” Pedersen told Data Management Insight from New York.
“This is all about enriching the fundamental research process for listed equities. They have to have a differentiated view and so using the depth of data in Visible Alpha helps them achieve that.”
Data Market
While the market for forecast consensus data accounts for a relatively small proportion of the global financial data market’s estimated US$20 billion valuation, its services are invaluable to investors. Companies including LSEG’s Refinitiv, FactSet and Bloomberg offer a variety of consensus products too.
Pedersen said that Visible Alpha differentiates itself by drilling deep into the models that derive each analyst’s estimate, giving clients greater visibility into the drivers of performance of individual companies that can better inform clients’ investment decision making.
While analyst reports may provide estimates for anticipated headline numbers, like quarterly revenues and earnings per share, investors can take a more informed position if they have a deeper, more nuanced view of a stock, said Pedersen.
“The market for consensus estimates before Visible Alpha was very high level because they were sourced from the PDF research reports,” he said. “There wasn’t a quantifiable answer for what the market was expecting at that level of granularity. Visible Alpha provides that next level of granularity, which provides a benchmark of the market expectation for these issues.”
Finer Detail
Pedersen illustrates how Visible Alpha perceives its advantage over competitors using research on Apple as an example.
“If you are looking to understand the market expectations for Apple, you of course care about revenue, profitability and earnings, but your question is also how many iPhone units are being sold at what price, how many of the latest iPhone units versus last year… and then how many iPads, how many Macs and so on,” he said.
Since Visible Alpha’s founding in 2015, the company has expanded to incorporate the research of more than 250 banks from the original 12, and expects that to increase to 300 very soon. Further, it has boosted the number of companies on which it gives data to more than 7,300 across 170 industries.
Visible Alpha has automated the data extraction process, ingesting the banks’ models into its own systems and then using artificial intelligence to organise the information. After that, hundreds of industry-focussed analysts work to ensure each data point is methodologically consistent and an accurate representation of the market view.
The data is presented in a variety of formats, including within S&P Capital IQ’s comparable, or “comps”, analysis tables. These also will be presented in a more granular way, disaggregating data for more detailed analyses.
“You go from comps tables that were more generic – price-to-earnings, price-to-cash flow, revenue growth – to something very specific,” Pedersen said. “We’re always looking for interesting ways to curate the data.”
Another example would be Cloud revenue. Visible Alpha is able to parse cloud revenue from total revenue for the big technology players and provide answers to questions such as, what are expectations for growth in cloud revenue for companies that participate in this space?
The service is provided as a premium option within the S&P Capital IQ contract after it had been incorporated into the S&P Global Marketplace.
S&P Global Market Intelligence Head of Data & Research Warren Breakstone said Visible Alpha’s incorporation into the Capital IQ platform will bring an understanding of “market expectations for companies at a level of depth that was previously very difficult, time consuming and inefficient to uncover”.
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