CorpComms Magazine

The popularity of a company on social networking sites may actually determine its share price and could, over a longer period, be a lead indicator of stockmarket performance, a new study has claimed.

An analysis of three of the most popular brands on social networking sites, Coca-Cola, Nike and Starbucks, over ten months, found that it was possible to reliably predict their daily share price movements as a result of positive comments and online engagement.

Arthur O'Connor, a doctoral student at Pace University, drew on information, provided by social media analytics service Famecount, in the Facebook, Twitter and YouTube accounts of each brand, and focused specifically on 'likes', 'followers' and 'view' data.

Daily fan counts on non-trading days, such as weekends and bank holidays, were excluded from the analysis, which ran from 7 April 2010 to 2 February.

Predicts daily movements

The results showed that social media popularity can predict daily share prices, which suggests that there is a clear link between consumer behaviour and brand performance.

The linkage was even more marked because over the tenmonth period each of the three share prices enjoyed decidedly different performances. Shares in Starbucks, which was the subject of chatter surrounding its rebranding, rose 29 per cent, while Nike rose 14 per cent and Coca-Cola fell by nearly six per cent.

But Starbucks has also made a concerted effort in the past two years to engage with consumers on social networking sites. On 15 March, the Seattle-based coffee chain passed 20 million fans on Facebook, making it the fourth most liked brand on the site after Facebook, YouTube and Coca-Cola.

Its fan base has doubled since last July when it became the first brand to clear the ten million mark on Facebook. Its growth trajectory has not slowed. Just one year earlier, Starbucks had only 1.7 million fans on the social networking site. It also has more than 1.3 million followers on Twitter.

Starbucks now regularly updates its page, and rewards fans with special offers. For example, an application, which was launched last April, on Starbucks' page allows fans to manage their stored value cards that they use for pre-paid purchases at branches. The cards alone have almost 49,000 'likes'.

Longer term indicator

O'Connor also found that, while the correlation held true on a daily basis, social media popularity also pointed to share price performance over a ten day and 30 day period. Some degree of correlation, however, may be attributed to the positive bias among new social networking fans, and this may partly be the due to promotional campaigns to win new Facebook friends or Twitter followers.

But, as the study makes clear, campaigns are only part of the story. Coca-Cola became the most popular brand on Facebook when its page was unofficial, meaning that its social media following was not influenced or created by any marketing initiatives by the drinks giant.

O'Connor added: 'The study has many limitations, perhaps foremost a relatively crude assumption about the correlation of brand popularity with corporate performance and investor behaviour: that popularity favourably impacts performance. 'Perhaps contrary to the old saying, 'There's no such thing as bad publicity', the results of the event studies would have been much different if any of the brands were the focus of scandal. At least intuitively, one would expect lower performance or valuation with greater public discourse or criticism that might damage the image or reputation of the respective brand or corporation.'

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