On January 2, 2019, Apple stunned investors with a bleak revenue guidance, lowering the previous guidance for first quarter 2019 sales of $89-93 billion to $84 billion. (See January 2, 2019 Apple CEO’s letter). A “major black eye” called it CNBC. Investors agreed: Apple’s share price dropped 10% (the market overall decline was 2.5%). This harsh investor reaction isn’t surprising for a company that coddled its investors with perpetual good news. What I found surprising though, was something else.
I decided to examine the information sources used by investors to back their reaction to Apple’s guidance, starting from the least likely information source: Wikipedia. Least likely, because you would expect investors to peruse company filings, analysts’ reports, financial websites, like Seeking Alph, and similar professional sources. But, Wikipedia? That’s for laymen (or layperson) and kids.
So, how great was my surprise to see that on Apple’s guidance day (1/2/19) and the following two days, the volume of visits to Apple’s Wiki pages was abnormally high, with 17,000 visits on January 3 alone, see below. What relevant information can investors find in Wiki pages? Turns out that Wiki has a lot to offer to investors, particularly individual ones.
Ms. Chenqi Zhu, a Ph.D. candidate under my supervision, recently examined thoroughly investors’ use of Wikipedia. As is widely-known, Wikipedia is a website that anyone can freely read and edit. In fact, anyone can create new, or edit existing wiki-pages. Wikipedia thus harnesses the wisdom of the crowd, in contrast with a single-authored analyst report. Millions of volunteers make sure that Wiki pages are up-to-date, and to a certain degree, free of bias and mistakes. That’s more than can be said about many financial publications. Wikipedia itself maintains editing policies, such as “neutral point of view,” and “verifiability.” Research, in general, corroborated Wiki’s timeliness of information and neutrality.
For me, a frequent reader of corporate financial reports (a great insomnia drug), the main advantage of Wiki is its readability. Very little financial mumbo jumbo that makes financial reports outright unreadable. In the main, Wiki offers plain language even on complex topics. In fact, Wikipedia has also readability guidelines for plain, concise, and direct language. No wonder Wikipedia receives close to 20 billion visits per month.
Chenqi Zhu’s research (“Investor Demand for Contextual Information: Evidence from Wikipedia,” 2018) confirms that Wikipedia’s corporate pages are indeed an important information source for investors. In essence, Ms. Zhu finds: (1) On average, a Wiki-page of an S&P 500 company is visited 1,025 times a day (I have recently wrote in a blog post, on August 1, 2018, that a 10-K annual report is downloaded only 28.4 times, on average, on the day of publication on EDGAR). (2) There is a large spike of Wiki visits on the days companies announce their earnings, a clear sign that investors use Wiki to interpret and better understand the earnings release. (3) Same large visit spikes for managers’ guidance (recall Apple), M&A announcements, and extreme share price movements. (4) Interestingly, Ms. Zhu finds that the more opaque and unreadable the earnings announcement is, the larger the number of Wiki visits. Also, intangibles-intensive companies, with complex business models, are visited significantly more than “simpler” companies. (5) Finally, Ms. Zhu documents, not surprisingly, that most visitors to Wiki’s corporate pages are individual investors, rather than institutions. All in all, a considerable investor demand for Wiki’s information.
So, here you have it. Corporate Wikipedia pages can be an efficient, unbiased, and quite reliable information source for investors. Who would have thought?