Deriving alpha from trademark data
At Neudata we have seen increased interest in datasets that offer insights into a given company’s Intellectual Property. We explain 1) why we think this is, 2) why we believe trademark data is particularly interesting, 3) empirical studies that support this view, and 4) recommended providers to use in order to access trademark data.
IP data interest
In recent months we have seen notable interest in IP-related datasets at Neudata. To us, this makes perfect sense given the long-term growth in intangible assets across balance sheets worldwide. Take the S&P500, for example. As a percentage of total assets, intangibles have risen from 20% to around 85% in the last 40 years. Throughout this period, however, accurately and independently valuing these intangibles has remained problematic.
We suspect one of the main reasons for the recent interest in this subject is the advancement of companies claiming to offer useful intellectual property data applicable to listed entities. Several examples are available on the Neudata platform.
A closer look at trademark data
What we find particularly interesting within this relatively niche IP data provider universe is that, despite the existence of a relatively large number of patent data providers, trademark data providers are a rare breed. This may change in the coming years considering 1) the level of interest in such data from institutional investors and 2) several empirical studies that suggest there are significant value opportunities in analysing such data (see below for notable examples).
Why file trademarks?
For the uninitiated, a firm’s underlying motivation for registering trademark registrations often includes the following¹:
1) Leveraging firm assets: trademarks are used to increase the value of assets a company already possesses, such as company image, customer base or negotiation power. A new brand can strengthen any of these assets.
2) Perception of firm: registering trademarks emphasises the importance of product or market innovation to both firm insiders and outsiders. Put simply, a new trademark can give the perception to current and potential investors that something new is happening at the company.
3) Improving marketability of firm assets: if an asset is trademarked, not only is this is an indication that it is valuable – it also means direct imitation by a competitor is prevented.
Is there evidence of alpha from trademark data?
There are several studies which suggest there is a strong correlation between trademark filings and financial performance. For example:
- Krasnikov, Mishra & Orozco (2009) conducted an analysis on US firms, based on data spanning 1995-2005, in order to evaluate the correlation between trademark registrations and financial performance. The authors conclude that there exists a strong correlation between trademarks and cash flow, Tobin’s q, cash flow variability and stock price.