Facebook "Likes" and Share Price Spikes

Jerry Rackley

By Jerry Rackley

A business that doesn’t have a social media strategy is like an actor that goes on stage without a costume. It’s ridiculous not to have either. Still, I confess to wondering how to measure the impact of social media or any marketing strategy. This has been the bane of a marketer’s existence – showing some kind of ROI for the things we do.  We’ve discussed this matter before in this blog.

This week, while listening to “Morning Edition” on my local NPR station, I heard Ilya Marritz’s story, “How Much Is A 'Like' On Facebook Worth For A Company's Share Price?” Every marketer should become familiar with this story, particularly if you work for a publicly traded company.

The story introduces us to the work of Arthur J. O'Connor, who as a Ph.D. student wrote a paper, "The Power of Popularity: An Empirical Study of Fan Counts and Consumer Brand Stock Prices." In his paper, he describes the results of his research about the impact of corporate Facebook popularity on performance, as measured by share price.

Before you read further, I invite the reader to stop for a moment and consider how strong this correlation is, in your opinion. Intellectually, you’d be foolish to dismiss any connection between the two, or likewise strongly correlate the two. In other words, most of us would probably avoid the end points of this correlation spectrum and guess the truth is somewhere in the middle.

For a year, O'Connor tracked brands like Abercrombie & Fitch, Adidas, Aeropostale, Best Buy and others that had lots of Facebook followers. What he found was an incredibly high correlation between Facebook popularity and daily share price. As Marritz reports, 99.95 percent of the change was explainable by the change in fan counts. “In other words, the overwhelming majority of the change in a company's stock price correlated with the Facebook likes that day or that period.”  This revelation is nothing short of astonishing.

The inescapable conclusion: the love a company’s fans show it through Facebook is a powerful if not reliable indicator of its stock market performance. Lest you think this is analogous to using a Magic 8 Ball to guide your stock picks, Marritz reports that not only is Wall Street interested, but many investors are buying social media “sentiment feeds” to integrate into their stock trading algorithms.

If you’ve not yet boarded the social media train, this compelling evidence should convince you to hasten your journey. It’s been clear for a while that social media is a good strategy. This new research should convince any company to invest fully in a social media strategy. For those who aren’t sure how to get started, take a look at the Demand Metric Social Media Marketing Plan Methodology, a comprehensive, step-by-step guide to doing social media well. If you’re not sure which of the social media channels make the most sense, use the Demand Metric Social Media Channel Selection Tool. Demand Metric offers 31 tools, templates and on-demand webinars to help you successfully create and execute a social media marketing strategy.

By the way, if you haven’t yet connected with Demand Metric through social media, please consider this your invitation to do so! We’re on Facebook, LinkedIn and Twitter (@demandmetric).

 

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