What every investor should know about digital marketing
Outside-in digital marketing indicators to gauge real-time trends, before quarterly financials
[charts of real-life examples included in this post]
So, I’ve come across a few researchers / fund managers recently, all with extensive background in their respective fields, yet most had no tangible hold on how digital marketing activities lead to corporate performance and financial results.
And my view is that, in the near future where digital marketing capabilities becomes an integral part of “valuing” a company, investors and fund managers will have to change how they look at performance, to include these indicators.
I know that sounds like a lot of mumbo-jumbo, so let’s jump right into the “how”:
3 types of outside-in methodology will be introduced:
Organic traffic, Paid search and app marketing.
Organic traffic — the lifeblood of website traffic and generally core source of new visitor/new customer growth, and usually takes a lot of time to influence. If, as an outsider you see organic traffic for a certain company declining, warning sign.
So, what is it?
Organic traffic is Google(or Yahoo JP, Yandex, Naver, etc) driving free traffic to your site from their user searches, based on the relevancy between the search intent and the content on your site.
How can SEO be utilized?
Tools such as Ahrefs ( https://ahrefs.com/, not an affiliate link) enables visibility into organic traffic presence: #backlinks, keywords, rankings by region, competitors, etc.
For example, with just a few clicks you can see organic traffic indicators have declined for this certain ecommece website:
# of backlinks, over past 12 months:
Organic traffic trend over past 2.5 years(past 1 year with red to show trend):
And, we see stock prices have shown declining trend for past 12 months:
What does this mean?
It means, for companies whose businesses are driven by online traffic, we may be able to utilize outside-in information as something close to real-time indicators, before waiting every quarter for financials to be released.
Paid search — buying “growth”
What is it?
Paid search is cost per click ads that are shown when users search within Google / YouTube / Gmail, etc.
How can Paid search information be utilized?
The same company above is investing into Paid Search in Russia & Israel— this could be interesting to know if you were an investor / competitor of the company.
What this means — the company has high margins in Russia, therefore we can see that they are spending most paid marketing spend in Russia compared to other regions, even if they have a very small customer-base in Russia. It seems they may be desperate to acquire growth, or the perception of growth, regardless where their actual customers are.
App marketing
What is it?
App download and active user data is available by services such as App Annie.
What is it really?
For most companies, apps are usually aimed to provide better usability / personalization of website services. (except for app-centric services: Uber, AirBnB, Tinder)
So, if we look at a funnel, it usually looks like this.
Attention: Display ads, PR
Interest: search online for relevant searches
Search: search online for the service name
Action: buy or subscriber to the service
Retain: become frequent users of the service, and possibly download the app
The Top 4 countries for the above company for app ranking relative to each market is as follows:
This shows that top countries are again Russia / Israel, not where their core customers are, suggesting the company is paying for users to download apps, instead of the app being a retention program.
So, based on the above information —
we know that the company has lost organic traffic in its major markets, and recently focusing to acquire customers in non-core regions via both paid search and app marketing, possibly due to lower CAC, higher margins for a chance that these users have higher LTV— now we have an interesting story to deep-dive further, such as:
What is the potential of these countries?
What are the expected profits?
What is the expected LTV for these new users?
So, by doing a bit of research we can have real-time information as to where the company is spending money, which can help you value a company.
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