How impactful can social media data be in investment decisions

What is social media data?

Social data refers to all the information that social media users post publicly, such as their opinions, “follows”, “likes”, location, language, biographical and demographic information, links they share, etc. Nowadays, companies heavily rely on this data, which expresses market sentiment, to adjust their strategies and grow sales.

Along with web traffic and other digital alternative data, social media analysis is a valuable tool for understanding consumer behavior and sentiment toward a company. It also functions as a daily-updated competitor analysis tool.

Why social media data is important?

With the abundance of content on social media, an increasing number of investment professionals are turning to it to track, monitor, and evaluate interest in specific stocks, as well as to monitor market sentiment. Social media data can be used by investors to predict the market's outlook and economic performance, as well as upward and downward stock ratings, and thus directly influence their investment strategies.

Furthermore, investors can use social media sentiment to get information about stocks, cryptocurrencies, and commodities that they would not be able to get from more traditional sources.

For example, before the debut of the first Hunger Games film, several investors noticed that related hashtags were trending due to increased interest in the novels. Investors saw potential similar to that of the Harry Potter and Lord of the Rings series and purchased Lionsgate stock (the company that secured the film rights). With an opening weekend gross of $152.5 million in March 2012, The Hunger Games became the third-highest-grossing film of all time, leading Lionsgate share prices to skyrocket by 67%.

Let’s illustrate with a few real-time examples.

Pfizer Inc. ($PFE)

Figure 1: instagram.com/pfizerinc ($PFE) Followers count (Oct-Dec 2021). Source: strike.market

In this first example, we can see strong growth in followers on Pfizer's Instagram account. Recently, the Omicron Covid-19 variant has been making global headlines, and Pfizer has been actively working on developing its booster vaccine, while constantly sharing promising results. We can therefore conclude that a growing number of people are expecting the booster shot from the company, resulting in this steady increase in the followers’ count. Moreover, on a global scale, we can predict that Pfizer should maintain a strong market share. Which should reflect (positively) on the company's earnings and share price.

Walt Disney ($DIS)

Figure 2: twitter.com/disney ($DIS) Twitter mentions (Nov-Dec 2021). Source: strike.market

When viewing Disney's Twitter mentions, we can see that they dropped significantly between the 5th and 11th of December. Accordingly, the company did not make any statements on Twitter during this period, while both preceding and following spikes could be attributed to release announcements for "Eternals," "Encanto" and "Hawkeye" (Nov. 28 - Dec. 4), and to new trailers and posters for "Death on the Nile" and "Doctor Strange in the Madness Multiverse" (Dec. 12 - Dec. 18). Thus, we can infer that customer sentiment is correlated with the company’s announcements.

Moreover, looking at the top right figure of the chart, weekly Twitter mentions had increased by 56.23% at the time of writing (December). This may be an indication of increased customer traction for the end-of-year celebrations, which could reflect in earnings in the next quarter.

In conclusion

According to new research by Greenwich Associates, about 80% of institutional investors currently utilize social media as part of their analysis tools, and roughly 30% claim social media information has directly affected an investment decision. The piece also shows that such data have prompted 34% of retail investors to make at least one modification to their portfolio.

Thus, as Wall Street traders and large corporations increasingly incorporate social media data analysis into their stock market algorithms, social media is entering a new realm. We, at strike.market, believe the strength and significance of this data, as well as its accessibility, make it an invaluable tool for both professional and individual investors.