The ultimate goal of any marketing expenditure is to increase the value of the firm. In this study, we link Twitter activities of 10 brands to stock prices.
Social media and stock prices
The popularity of social media rises. 77 of the Fortune 100 companies in the United States already have a Twitter account and the number of followers of these accounts doubled last year (The Realtime Report, 2011).
However, despite the popularity of Twitter and other social media, marketers have little insight in their effectiveness. Almost half of the companies do not measure the return on social media investments, since they do not know how to measure them.
Operate on feeling
Hence, most companies operate on their feeling, without any structural performance targets. Therefore, valuable metrics are needed to measure the effectiveness of social media investments.
The ultimate goal of any marketing expenditure is to increase the value of the firm. One way to measure the effect of social media on firm value is to link activities on social media to stock prices.
In this study, we link Twitter activities of 10 brands (Coca-Cola, IBM, Microsoft, Google, McDonald’s, Intel, Nokia, Disney, Toyota and Cisco) to their daily closing value on either the Dow Jones or Nasdaq.
Effects of Twitter activities
We measure both the amount of tweets, and, more importantly, the ratio of positive to negative tweets on a daily basis. In a time-series analysis, we investigate the effects of Twitter activities on stock price during the course of a year, with daily observations.
We find significant effects for 5 of the 10 brands. To summarize, the main results are:
- For Coca-Cola and Toyota, we find significant positive relationships between the number of brand sentiment tweets and their stock prices. Every 100 brand sentiment tweets about Coca-Cola result in a temporary $8 increase in their stock price and for Toyota, 100 brand sentiment tweets result in a short-term increase in the stock price of $14. An explanation for this positive relationship is an increase in brand awareness, due to a larger number of brand sentiment tweets, which might lead to more demand for their products and ultimately higher stock prices (Godes and Mayzlin, 2004).
- For Microsoft and Disney, the brand sentiment index and stock prices are positively related. An increase of 10% points in the sentiment index improves Microsoft’s stock prices temporarily by $0,015. For Disney, an increase in the brand sentiment index of 10% points results in a temporary increase of the stock price of $0,001. An increase in the brand sentiment index is a sign of increased customer satisfaction. Customer satisfaction leads to more loyalty and repurchases (Fornell et al. 2006; Luo and Bhattacharya, 2006), which might positively affect business results and stock prices.
- Twitter does not instantaneously have an effect on a company’s stock prices, investor reactions grow over time. On average, it takes 2 to 4 days before the impact of the number of brand sentiment tweets and the brand sentiment index on stock price is the highest. The effect dies out 1 till 6 days after the peak day. The overall effect diminishes over time, hence the model captures the effect of forgetting.
Advice to business
These findings offer businesses a possible way to measure the effectiveness of social media investments. For brands like Coca-Cola and Toyota, the number of brand sentiment tweets can be used to measure the effectiveness of social media.
Brands like Microsoft and Disney, on the other hand, can use the brand sentiment index to measure the effectiveness. The brand could increase the number of brand sentiment tweets and brand sentiment index by motivating satisfied customers to provide positive word-of-mouth.
Another option to stimulate the number of brand sentiment tweets and the brand sentiment index is to increase the brand’s activity on Twitter. The brand could send out more tweets and try to communicate directly with its customers by using the @-mention.
Further, the brand could stimulate customers to follow the brand, by giving followers of the Twitter account additional benefits.
The article is based on Jubbega, Annika (2012): Twitter as driver of stock price. MSc thesis from BI Norwegian Business School.
This article is published in BI Marketing Magazine #1/2012. BI Marketing Magazine is a Science Communication Magazine published by the Department of Marketing at the BI Norwegian Business School.