How Twitter Can Influence Your Share Price
Not so long ago it was hard to imagine a message sent into cyberspace could have a real-world impact on Wall Street or the ASX.
But we now live in a time where Tweeting a few words can boost market value by a billion dollars in a day.
More than half of the world’s population is now online, and 3.19 billion people are active on social media. So it’s only natural that corporations and investor relations have also moved into this virtual space.
But how can a social networking platform like Twitter be used for IR? And why are companies choosing to broadcast important corporate communications via social media?
As of July 2018, Twitter has 336 million users, and is available in more than 40 languages around the world.
That makes it the 11th largest social media platform globally, behind giants like Facebook (2.16 billion), YouTube (1.5 billion), Facebook Messenger (1.3 billion) and Instagram (800 million).
Statista: Most popular social networks worldwide as of July 2018, ranked by number of active users (in millions)
Twitter’s number of active users is also well ahead of the dedicated corporate social networking platform LinkedIn, which has just 260 million users worldwide.
How Twitter helps Institutional Investors
A recent study by the University of Toronto’s Rotman School of Management, analysed nearly 900,000 tweets related to 3,000 firms and posted between 2009 and 2012. The posts were from people expressing new or original opinions about a firm’s fundamentals and firms themselves passing on existing information.
An analysis of the platform’s commentary also suggested that Twitter does well at forecasting how the stock price would subsequently respond. Even with little information about a company (such as a small firm with limited marketing and communications capacity), and for tweets that relayed information specifically about a firm’s fundamentals and stock activity it was a strong predictor of stock price movements.
Twitter’s Growing Influence on Investors
Twitter is popular with all age groups, with people under 30 accounting for only 40 per cent of Twitter users in the US.
A review of Corporate Social Media Use in the US and the UK found Twitter was the second most popular platform among corporations with 85 per cent uptake, just behind LinkedIn with 93 per cent, but ahead of YouTube (70 per cent) and Facebook (68 per cent).
The companies that posted IR content on Twitter dramatically increased engagement with 60 per cent more followers than those that didn’t.
And that’s because investors are engaging in the Twittersphere. One study found 36 per cent of high net worth investors use Twitter, and they do so habitually. Almost half of UHNW investors with a net worth between $5 million and $25 million on Twitter check it daily, while one in four use it at least twice a day.
The Spectrem study also revealed interesting uses for Twitter among investors, with 51 per cent using it for observation only, 45 per cent using it to follow political commentators, 38 per cent sharing information with others, and 11 per cent actively sharing and communicating.
Spectrem Group: The Importance of Twitter to Investors
Companies that tweet corporate news and financial results can significantly affect stock prices even if the company’s tweets contain no new information beyond what is already posted through the stock exchange platform. A study of 3,516 corporate announcements published by Australian listed companies throughout 2008-2013 at the Australian Stock Exchange (ASX), found that corporate information sent out on social media can unintentionally influence investor decisions in an unequal way. Twitter is more popular for company communication and investor relations.
In a recent study titled “Institutional Investing: How Social Media Informs and Shapes the Investing Process” it found that 4 out of 5 institutional investors frequently use social media platforms at work. Furthermore, nearly one-third of those investors also confirmed that the information they have consumed through social media has, in fact, impacted their investment decision process.
How Twitter is used for IR
Since the Securities and Exchange Commission’s decision in 2013 to permit social media for financial disclosure, corporations have taken advantage of the instantaneous, free and direct communication capabilities of Twitter.
Names like Goldman Sachs, Ford Motor Co and Twitter itself use dedicated IR Twitter handles specifically for investors, allowing them to reach a targeted audience and deliver specific and relevant messaging.
It has become a popular platform for releasing quarterly earnings, infographics, links to interactive annual reports, real time Q&A sessions and carefully curated grabs from positive announcements. The use of a clickable ‘cash tag’ also helps direct information to a financial audience, by inputting a dollar sign before the stock ticker.
How Analysts use Twitter
Shareholders and investors can and do follow their investments and financial interests directly on Twitter, but automation technology is increasingly playing a role in how market information is distributed and analysed.
Data platforms like the Bloomberg Terminal compile Tweets from companies around the globe, and use both people power and AI to find and interpret breaking news that might impact share prices.
Bloomberg Professional Service says it ‘uses supervised statistical machine-learning techniques to construct news and social sentiment from the story text’.
“Bloomberg News and Social Sentiment classification engines are trained to mimic a human expert in processing textual information. First, a human expert manually assigns a positive, negative or neutral score to each news story or tweet. The labeling is based on the question “If an investor having a long position in the security mentioned were to read this news or tweet, is he/she bullish, bearish or neutral on his/her holdings?” Then, the annotated data is fed into machine-learning models, such as a support vector machine. Once the model is trained, when new information comes, the model automatically assigns a probability of being positive, negative or neutral to each news story or tweet.”
Twitter also offers specialised data tools including Twitter Data for Finance and an Enterprise API Platform, delivering real time and historical data to detect events likely to move financial markets and help users understand trends and events as they unfold.
Just how powerful is Twitter anyway?
Donald Trump openly admits he probably wouldn’t be the President of the United States without Twitter.
Crowned the ‘Twitter President’, Trump’s infamous late night and early morning Tweets touch on everything from his musings on international affairs to proclamations of controversial accusations and policies – some of which have had dramatic impacts on trading and share prices.
Recently, President Trump said the stock market was making a ‘big mistake’ in response to record breaking sell off on the US exchanges. His Tweet claimed share prices now ‘go down’ following good news, unlike the ‘old days’ when the stock market would strengthen on reports of economic growth.
Breaking news on Twitter has influenced trading and share prices on many occasions. One reputable feed Tweeted about the Greek reform deal before it hit mainstream media, and Business Insider was able to demonstrate that the story broke before share prices spiked, giving Twitter-savvy traders and investors a greater advantage.
Cases like this have results in calls for tighter controls on social media, including requests for the Australian Competition and Consumer Competition to intervene.
ASX chief executive Dominic Stevens told the Financial Review the ‘world does change’, when asked about social media’s growing influence on the share market.
“…and what you have to do is keep on incrementally changing to get to where you want to go,” he said. – Financial Review, 2018.
An influential IR platform for CEO’s
A 2017 survey, found that just 35 per cent of the CEOs of Australia’s 20 largest listed companies are active on Twitter, and only half have a LinkedIn profile.
Australian CEOs rank fourth in terms of total presence on Twitter and LinkedIn, sitting behind France, Norway and the Czech Republic respectively. Compared to executives who aren’t active on social media, CEOs who are social savvy are 89 per cent better at empowering others, 52 per cent stronger at compelling communication, and 46 per cent more influential.
For growing ASX listed companies such as MGC Pharma and Cellmid Limited Twitter is an influential platform that can help to educate their stakeholders on their activities with up to 2,000 active followers, surprisingly larger numbers than some of the top 50 ASX listed companies.
Other top 50 ASX companies have embraced Twitter, such as Woodside Energy, South32 Limited, Rio Tinto Limited, embrace Twitter and are also using it to their advantage with posts around activities, employees, and educating their stakeholders on their industry. BHP is certainly leading the way in using it to educate their stakeholders on their benefits and future strategy with compelling video’s, images and posts that attract engagement.
Twitter thus offers companies the ability to strongly influence their brand and communications. It leverages the key benefits of a proactive, dynamic and real time connection to investors, stakeholders, and the media – all around the world.
It can be a critical influencer in the IR arsenal when there is a well thought out strategy that is executed consistently and creatively.
As recent investor research highlights, Twitter is an extremely powerful digital resource and far too valuable for corporate and IR teams to ignore.