Sunday, 15 August 2010
Lies, lies and dammed statistics – do social media storms really affect a stock price?
I was reading some provocative headlines the other day about “United Breaks Guitars”. One from the Daily Mail stood out: “The sweet music of revenge: Singer pens YouTube hit after United Airlines breaks his guitar... and shares plunge 10%”.
Somewhat sceptical, I decided to look at the United’s share price during the social media storm to see whether the facts backed up the headline, or whether this was simply over-zealous reporting. My workings are in this Google spreadsheet (I’m no financial analyst so if you find any errors please feel free to let me know and I’ll update accordingly!).
Dave Carroll posted his video on YouTube on Sunday 05th July 2009. Previously United’s share price had closed at $3.31 on 2nd July (before the holiday weekend). The day after the video was posted the share price rose to close on $3.34 (+0.91%). The story then hit the national press on 8th July and the share price closed that day on $3.25 (-1.81%). In the following few days the share price reached a low fluctuation of $3.07 on 10th July (-7.25%), but it closed on the same day at $3.26 (just a -1.51% drop from 2nd July). One month later the price had soared to $6.04 (+84.5%), hardly a “10% plunge in value”.
In addition, there were most likely lots of other issues affecting United’s share price during the period in question. Correlation of events certainly does not mean causation, particularly in an industry that has been greatly strained over the last few years and has seen huge fluctuations in stock prices. In this case, at best “United Breaks Guitars” might have been one contributing factor to a temporary dip in United’s stock price; a PR storm in a teacup that the company quickly overcame (at least from the perspective of their stock price).
I started to wonder whether the same pattern played out in other social media storms so I tracked the stock price of BT (after Patrick Askin’s YouTube video complaint), M&S (after Bra wars), Nestle (after their Greenpeace attack) and Dell (after Dell Hell). If you have any other interesting examples please let me know.
In the case of both BT and Nestle, both saw a minor drop in their share prices in the week following their media storms. Nestle’s low point fluctuation was -1.88% (19/03/2010), BT’s was -1.5% (25/06/2010). One month later BT’s stock price had jumped back (+3.39% on 20/07/2007), Nestle’s had dropped further (-2.08% on 17/04/2010); still nothing to suggest that social media storms have anything other than a minor impact on short term stock performance.
M&S and Dell however, experienced slightly larger drops in share price in the period after their respective social media storms. Following (but clearly not necessarily because of) their customer petition against their pricing policy on bras, M&S saw their share price drop by -6.47%, at the lowest point during the first week . One month later the stock had dropped -15.88%. However, we should remember for context that the UK was deep in recession at the time and most high street retailers were suffering.
The day before Jeff Jarvis published “Dell lies; Dell Sucks”, Dell’s share price stood at $40.45 (20/06/2005). The story was somewhat slower moving than the Twitter-storms of today. Various articles appeared on “Dell Hell” over the next few months, including The Guardian and Business week on 29/08/2005. Through that period, Dell’s share price certainly did fall: -2.92% in the first week, followed by a bounce back of +2.78% in the first month, followed by consecutive month by month falls. On 19th August the price was down -9.7% ($36.39 on 19/08/2005 from the original $40.45 on 20/06-05), in September -18.27% (20/09/2005) and October -25.15% (20/10/2005).
So what can we learn from any of this? Firstly, attention-grabbing headlines aren’t always what they appear. Secondly, in the few case studies I’ve covered (which is clearly nothing like enough to draw out a pattern), the only constant in all the cases is a single-figure percentage point drop during the first week of the social media storm; certainly painful, but not necessarily disastrous.
Perhaps the best learning is that a social media storm can act as a wakeup call to senior management, alerting them of key issues that customers care about. In the case of Dell, these were quite fundamental issues relating to product quality and service and Dell’s response and embrace of all things social has been well documented. In the case of M&S, they responded to their customer petition by publically acknowledging their mistake and changing their pricing policy on bras. Similarly BT, hit by the Patrick Askins video (and indeed often criticised for their customer service) have embraced social media relatively extensively. They have a customer forum where customers can submit questions or ideas, they monitor Twitter for negative sentiment and their last TV campaign featured a “what happens next? You decide” online vote. Many of the companies who have experienced the wrath of the social customer have seen temporary pain but have then turned their negative into a positive.
Disclaimer and Disclosure – I have not worked with any of the companies mentioned, not have I analysed anything other than their share price and the dates of their social media storms. Share prices are affected by a huge range of factors (earnings reports, new product releases, acquisition rumours etc). I have not traced any of these major events to the stock prices above.