SAN FRANCISCO – The torrent of posts on Twitter last year about Netflix might have tipped off investors to stock swings that erased about $8 billion from the movie-rental companys market value in three months.
Topsy Labs Inc., a site that searches data on the microblogging service, analyzed tweets during a period around Netflixs decision last September to split its DVD and streaming businesses.
By examining posts such as just canceled my Netflix subscription, Topsy was able to pick up signals of a coming drop. Now, its taking those results to help build a new service to aid investors in predicting other stock moves.
Information dissemination is now largely not through publication but through conversation, said Rishab Ghosh, co-founder and vice president of research at Topsy, based in San Francisco.
Weve actually been able to show that you can take that data, put it through processing and relate it to the market return for a specific stock.
Topsy is one of several companies, including WiseWindow and Derwent Capital Markets, that use so-called sentiment analysis, a cutting-edge technique where companies examine the chatter on Twitter, Facebook and blogs to help them predict stock movements, market trends and the success of new products.
Sentiment about Netflix was found by tracking negative and positive comments on Twitter in a given day.
For example, an apology from your CEO wont win my business back would be considered negative, while Netflix split a good long-range move for the company was positive.
The company also used baselines to adjust for distortions in data, such as the time of day. For example, the Topsy analysis discounted negative comments on Monday mornings, when people tend to be less upbeat.
It is data and news generated from the ground level, said Erin Collard, an adviser to Topsy Labs and a portfolio manager at Armored Wolf, a fund with about $750 million under management.
Its real-time, and its way more predictive, and way ahead of the curve before it even reaches mainstream media.