Blog 11 March 2021

Why GameStop Only Reinforces The Need For Investor Relations to Digitalize Fast

Investor relations (IR) professionals have discussed the idea of digital IR for as long as we can remember. In the dot com bubble, this meant monitoring investor chat rooms. In the early noughties that meant the IR website got an overhaul. In the 2010s, that meant a focus on webcasting and video content. There has been little real change to the cadence of communications or conventional investor targeting, media monitoring and engagement programs.

Now in 2021, the unrivaled influence of social media and the conversations that happen there, resulting in the Reddit march on GameStop in January this year, shows that even highly dispersed groups of retail investors can and are mobilizing on social media platforms.
But, should this be a surprise? No. Mainstream social media is now almost 15 years old. We all live digitally, both professionally and in our personal lives. Investors are no exception, especially when we think about the next generation of investment influencers. Renowned global activist funds and bulge bracket banks are calling the ‘Reddit squeeze’ a wake-up call for institutional investors and companies.

A week before GameStop (GME) hit the headlines, activity on this topic was already increasing on Reddit. This visualisation shows 42,000+ conversations taking place on the Reddit /WallStreetBets Subreddit, including hubs of conversations as the share price began to increase. The coloured hubs show the eight biggest conversations that took place.

Online content in all forums is a public information depository that can and will influence and inform investment decisions. We know from our artificial intelligence (AI)-driven institutional investor online targeting service, DAIR, that more than 80% of institutional investors are actively using social media to inform their decision-making process, with many actively engaging on social media platforms, not just passively consuming information. Globally, analysts, investors and market commentators have moved away from the static world of print, to the conversational realm of social media. Now it seems retail investors are following in large numbers.

So, what should an IRO do?

Well, IROs should start by proactively informing themselves and their management team of the online behavior and journeys investors are making. This goes beyond looking at the register and is not as impossible as it seems. By using AI, and tools such as IBM Watson, Kekst CNC can conduct network analysis and understand online connections and behaviors. Kekst CNC can also monitor chatter in areas previously not explored for IR, including the dark web. Many of the techniques applied are widely used in consumer advertising but have not been applied to IR or financial communications.

We can see what platforms, which communities, which influencers and which formats really matter to different investor groups, and where they place the value and engage most frequently.

For example, take a universe of 200 technology-sector active institutional investors, managing anywhere from $2 million to $75 billion in assets. Employing DAIR, we can see that 83% of the technology institutional investors analyzed are actively using LinkedIn to source ideas, join conversations, and engage with content. A further 9% are still highly active on Twitter, too.

They are actively engaging, with 54% posting original content, 22% sharing social media content and 15% engaging in online conversations with others on the platform. Our research showed that investors are far less interested in video content, with only 2% interacting with video formats on social media. So, is the expenditure on corporate videos influential with this group?

Content formats are only part of the story, with this analysis we can pinpoint the influencers that matter. Key influential accounts for tech investors included: Anand Mahindra, Goldman Sachs and the World Bank with Wired and TechCrunch were the among leading publications.

When combined with the effects of MiFID II, which has resulted in diminished or poorer quality coverage, as well as COVID-19, which has clearly constrained travel to meet investors in home or global markets, the case for accelerating digital IR is clear.

Social media is a core part of the investor online journey, even in institutional investor segments. Investors are not just lurkers. They are actively plugged into broader online communities, including Reddit, and will actively search all potential repositories of information when researching companies or making investment decisions. While institutional investors may not be able to mobilize and act in the same way as the retail investors that stopped the trading of GameStop shares, institutions will be paying even closer attention to the chatter and content in these forums. Many have already even begun monitoring these forums and using their Twitter accounts to provide signals to the market.

For heads of investor relations and financial communications, this challenges the notion that it is sufficient to post on social media around the traditional reporting cycle. Instead, social media should be actively monitored and harnessed to protect and promote a larger equity story, one that integrates a strong corporate narrative with frequent online updates showcasing developments and intellectual property.
Investors will find it easier to go to public forums and research there rather than trawling through analyst notes, which are increasingly restricted when doing initial research. To shape their view of the business, the equity story must be digitally packaged and dispersed across all digital platforms, in the same way thatmarketers approach brand reputation management. Amplifying the message and supporting the ever-evolving mosaic research approach of today’s investment influencers.

IROs need to harness the power of digital to protect and promote the equity story. Companies cannot leave the public to shape the narrative and performance of stocks. To take back control, companies need to actively monitor, engage and adjust their IR and financial communications strategies to reflect the evolving world around them and their investment communities.