Microcap Investor Relations and Social Media Case Study
Microcap investor relations can benefit fr om social media relation but there are things you should be understood by market participants. Most importantly;
- The affect that social media promotions can have on a company’s visibility in the market place, and
- The liability that can appear if social media marketing is used incorrectly by investor relations campaigns.
The Affect That Social Media Promotion Can Have on a Company’s Visibility in the Marketplace.
I have professed time and time again here at Cervitude IR that social media is one of the most cost effective ways to get your company name in the public eye. Even better, it is an economical medium to get in front of the right person or right group of people. Now I am not talking about touting your stock on social media, in fact we here at Cervitude IR advise against that (and so does the S.E.C.). In an article written in 2016, “Stop Touting Penny Stocks & OTC Micro Cap Companies: How to Maximize Your Investor Relations Campaign with Social Media” on our blog MicroCapCompany.com; I covered this and in a shorter post “Small Cap Executives & Penny Stock CEOs: STOP LOOKING AT YOUR STOCK PRICE!!” I reiterated my point: If a CEO is focused on building a great company, then shareholders will buy in.
That being said, the affects of social media promotions are real. In a 3 month campaign we ran back in 2012 for a small cap company, we saw over 100,000 impressions and we are able to drive traffic to the company’s main business. The graph below depicts the company’s trading prices and volume for the time period.
In the same time period, another 3 month campaign for a microcap company, we saw over 150,000 impressions and we are able to drive traffic to the company’s website and story. The graph below depicts the company’s trading prices and volume for the time period.
The first company had an operating business and revenues while the second company was a mining company in exploration. It should be noted that the social media marketing was done as part of a larger overall marketing campaign which included investor conferences, introductions to broker dealers and accredited investors and on going press releases by the companies.
In example #1 the social media marketing was used to drive traffic to their businesses and online websites. We promoted the company’s products and services which should lead to increased revenue. This in turn will lead to a better valuation of the company.
In example #2, where there was no revenue and the company was exploring mines, we managed to get the story in front of more people. Old methods, such as press releases, are no longer effective when issued alone. Press release will show up on a company’s profile page on OTCMarkets.com. Yahoo Finance and Google Finance (although sometimes not on all three – it depends on what newswire one uses to disseminate the news). But the company does not have enough people seeing the company in the first place, thus the problem with liquidity and lack of shareholders. After a press release was issued, I noticed that in order to be effective we needed to drive targeted traffic to the news release; so that people actually see the news.
On social media, targeting a specific demographic is easy. Online targeting can be done via geographic region, job title, sex, age demographic and more. This allows us to (1) share the press release on social media and (2) drive targeted traffic to the press release. For example, on Facebook, there is a cohort of people that have expressed interest in “mining” by liking a page related to mining or putting mining in their profile as an “interest”. By only showing the social media post to these people, your rate-of-return on marketing dollars and eventual conversion rate is higher.
The Use of Social Media for Company Disclosures
Back in 2013, the Securities and Exchange Commission issued a press release “SEC Says Social Media OK for Company Announcements if Investors Are Alerted” The release came after a report was published the same day saying that emerging social media communication platforms could be used similar to company websites to make official company announcements. This came after
“…an inquiry the Division of Enforcement launched into a post by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a subsequent company press release later that day did not include this information. Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix. Netflix’s stock price had begun rising before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.”
The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. Recognizing that there has been market uncertainty about the application of Regulation FD to social media, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.
This has lead public companies, especially smallcap, microcap and nanocap firms to not only follow suit, but at times make their social media platform a way to constantly communicate with investors and the investing public.
Prior to that, in 2012 the S.E.C., as they commonly do, issued an Investor Alert “Social Media and Investing : Avoiding Fraud” warning the investing public on how to identify potentially fraudulent investing schemes being promoted via social media. Rightfully it mentioned that many of these schemes, such as the “pump and dump” scheme is commonly found in the microcap and small cap stock sector. The Investor Alert, when read from the perspective of an Investor Relations team (or internal management team of a public company) tells you everything to avoid and even gives case law to validate the direction and approach NOT to take when implementing social media promotions and online investor relations via social media.
In and Upd ated Investor Alert released in 2015 titled “Social Media and Investing : Stock Rumors” the S.E.C. continued its mandate to protect investors by issuing an update on the potential harm “rumors” on social media can have to investors. In the Update, the S.E.C. describes two cases..
In a recent Enforcement action, SEC v. Craig, the SEC accused an individual of manipulating the share prices of two publicly traded companies by tweeting false and misleading information. The defendant allegedly tweeted rumors that federal law enforcement was investigating a technology company for fraud, and that a biopharmaceutical company had tainted drug trial results and a federal government agency seized its papers. The SEC asserted that these deceptive tweets were made from Twitter accounts mimicking established securities research firms. The hoaxes allegedly caused investors to lose more than $1.5 million.
In SEC v. McKeown and Ryan, the SEC obtained judgments against a Canadian couple who used their website (PennyStockChaser), Facebook, and Twitter to pump up the stock of microcap companies, and then profited by selling shares of those companies. The couple allegedly received millions of shares of these companies as compensation and sold the shares around the time that their website predicted the stock price would massively increase (a practice known as “scalping”). The SEC’s complaint alleged that the couple did not fully disclose the compensation they received for touting the stocks. The court ordered the couple and their companies to pay more than $3.7 million in disgorgement for profits gained as a result of the alleged conduct, and ordered the couple to pay $300,000 in civil penalties.
Again, these are great examples of what NOT to do via social media. The keywords here are “false” and “misleading”. While memes and jokes are rampant on social media, along with a lackadaisical vibe on how information is shared (mainly because its so easy)… public companies should never be false or misleading.
Nevertheless, social media has become a cost effective way to disseminate company information and news. At the startup phase of some smaller public companies, the constant release of news is important to communicate with existing shareholder and stake holders. It also acts as a way to promote the company. Now, with social media and company websites, news can be shared daily, at a fraction of what it used to cost, reaching a far bigger audience. Making sure your shareholders are alerted of this use is critical to complying with S.E.C. Rules.
The Liability That Can Appear if Social Media Marketing is Used Incorrectly by Investor Relations Campaigns.
As you should have figured out by now, the liability a company could face when social media promotions or marketing are done incorrectly can be fatal. For investor relations agents as well, not just for the Company itself.
The main thing that all parties should understand is disclose, disclose, disclose. The S.E.C. has charged several firms with a wide array of charges; but most prominently fraud, for not disclosing their compensation or misleading investors.
The SEC has brought charges against promoters for not disclosing the compensation they were receiving for promoting a stock. In SEC v. Smith, the SEC alleged that the defendants fraudulently promoted a data storage company through emails, online blogs, articles, and other media, without fully disclosing their compensation or that they would be paid more if they increased the company’s share price. According to the SEC’s complaint, the defendants made false and misleading statements to try to increase the trading volume and share price of the company’s stock, including falsely naming well-known companies as customers and making highly misleading projections about investment returns.
The guidelines are clear. As an investor relations firm, disclose how much and how you have received compensation. This should be done every time you are putting out any kind of promotion for the company. Again, as stated earlier in this blog post, you should not being “touting” uncertain prospects, the idea that the price will go up, or any misleading information. Other great reads on the subject include releases by the Securities and Exchange Commission: SEC Obtains Settlements in Penny Stock “Shell Packaging” Case, SEC Charges Three Penny Stock Promoters Behind Pump-and-Dump Schemes, SEC Charges San Diego-Based Promoter in Penny Stock Scheme and SEC Charges Stock Promoter With Fraudulent Manipulation Scheme.
CEOs Still Have Not Adopted Social Media In Large Part But Investors Have
In NIRI’s 2016 Social Media for Investor Relations Survey, the majority of survey respondent Investor Relations (IR) professionals (72%) noted that they did not use social media for work functions, a two-percent decrease compared to NIRI’s 2013 study. When asked why they aren’t tweeting, blogging or posting on Facebook (FB), IR professionalssaid it was primarily due to “lack of interest in the medium by the investment community.” And for those few IR teams that are using social media, very few were utilizing metrics to review the performance of their efforts.
But some research points to the contrary.
A Greenwich Associates report Institutional Investing in the Digital Age: How Social Media Informs and Shapes the Investing Process released last year revealed that almost 80% of institutional investors regularly use social media.
Out of that group, 30 percent said material gathered through social media influenced their investment decisions, 37 percent had informed their company’s decision-makers of information obtained on social media, 34 percent said information found on social media influenced a decision to work with a particular client or company, and 33 percent said information obtained on social media triggered a discussion with their investment consultant
“These results show that social media is influencing decisions that can result in the allocations of billions of investment dollars around the world,” stated Dan Connell, head of market structure and technology at Greenwich Associates and author of the study. “With approximately 40 percent of the institutions globally expecting to increase their use of social media in the coming year, we’re projecting a further, rapid increase of social media influence in institutional investment markets.
More information on statistics of companies and investors that utilize social media can be found at “What’s the Role of Social Media in Investor Relations” and “The Surprising Value of Social Media in Investor Relations”
The Future of Social Media in Investor Relations
Companies with retail products are best suited to se t up a separate investor relations social media presence so that investors may follow those pages for pertinent information. The future of social media is unknown for the investor relations world but one thing is certain, social media is here to stay. Here are some things to look out for in 2018 and beyond:
- Chat bots: Automatic responders will see more use as we continue to communicate over the internet. These responders can save companies time and money as well as collect important information; when used correctly.
- More Videos: YouTube is the number one social media channel by far and video continue to be the preferred source of consumer intake online. Investor Relations will be best suited telling stories on video as well as other traditional platforms. These videos can then be shared on several social media sites wh ere people are watching videos all day (this includes Facebook and LinkedIn).
- More Original Content: The days of simply sharing content or resharing content are tired. More and more companies are developing original content to share their stories.
- Automation: Aggregators and bulk file uploads for social media help take the stress off of timely news releases. In contrast to the past, now investor relations arms of public companies can preset the schedule of postings online months in advance. This automation helps them focus on other things; like engagement online. Automation in some forms also imitates engagement automatically liking or resharing someone else’s post on social media.
by: Nicholas Coriano
Cervitude IR helps companies with investor relations efforts focusing on leveraging the power of the Internet to tell the investing world about their company. Need help? Contact us today.