Portfolio

Forecasting: Mircosoft Layoffs

One of the main ideas behind using alternative data is that investors can obtain an edge over the market by accessing data that others likely do not have. As long as the information is publicly available, gathering and analyzing such data is not only legal but seemingly obvious. ZettaCap looked at components of bottom-up equity analysis and identified a number of key variables. Forecasting some of these variables could be helped by leveraging publicly available on-line data.

Often repeated questions for management during quarterly conference calls revolve around the company’s outlook, its perceived demand for its product going forward, and/or capital expenditure plans (CAPEX). All of these will impact future growth prospects and therefore the stock price. Beyond what management might say, we theorized that companies provide clues to their true outlook in their hiring plans, much of which can be inferred through analysis of their publicly listed job postings.

ZettaCap created a system to track listed company job postings over time with the idea that trends will emerge, providing an edge to investors. Like most data, it helps to place it in context with other developments and news regarding the company and even sector. These job postings trends were used to help forecast company outlook and to supply information that the market might be completely unaware of or is just speculating about.

In the case of Microsoft, the market had speculated about how its new CEO might start to change the company. In fact, in a memo entitled ‘Bold Ambition & Our Core’ he frequently mentioned ‘change’ and ‘focus’ which started speculation in the market as to just how and when such changes might come about.

ZettaCap’s job posting data for Microsoft showed a tremendous drop in the company’s job postings the day after the memo became public. It was almost as if, by using this data, you could see inside the workings of the company. Due to the exact timing, it literally appeared as if human resources pulled job postings almost immediately upon the release of the memo.

ZettaCap published soon after the memo the following:

“It appears from the overall trend of the company’s job postings together with the Memo timing, that layoffs will likely be announced, will be announced somewhat soon, and that they will cover the broader company, as opposed to just one unit.”

Important because:

• First known case of correctly forecasting layoffs using on-line job posting data