The following is a guest post by Miranda McWeeney, the SVP of Client Success at ListenFirst.
Back at the beginning of the week, when very few of us knew that “stonks” was internet slang for stocks, there was generally very little recognition of Reddit being a key market indicator around individual stocks.
What a difference a week makes; Reddit users have been promoting a number of stocks, hoping to squeeze short sellers that have been betting against them and they’re succeeding. Their best-known bets to date are GameStop (GME), AMC (AMC) and BlackBerry (BB). The top targets have had their trading occasionally halted for volatility, but one question remains: will we see it coming next time?
Here are the 4 social media facts you need to know about Reddit and the Stock Market.
Fact #1. There’s Been Long Term Interest By Reddit Users In The Stock Market
It’s not like amatuer investerors flocking to Reddit for financial advice is something new, for instance, the influential subreddit of r/wallstreetbets has been around since January 2012. “Stock” is mentioned an average of 1.3M times on Reddit each quarter, with a steady rise in interest over the past year.
Fact #2. It’s Been A Record-Breaking January
Throughout January to date, the term “stock” has been used on Reddit at record-breaking levels. There have been 635K mentions to date with a steep climb in the final week of the month.
Fact #3. There’s A High Correlation Between Brand Mentions And Rising Stock Price
Early Reddit buzz about GameStop and BlackBerry was the catalyst for the user base taking a greater interest in the stock market in general. The volume of conversation on Reddit related to GameStop and Blackberry started to rise on 1/11/21 and has remained above each brand’s average through the close of the month. AMC saw the same trend beginning on 1/15/21. All brands show a relationship between the daily volume of Reddit mentions and their closing stock price.
Fact #4. Social Listening On Reddit Can Help Identify The Next “GameStop”
This event has raised the notion that Reddit mentions are potentially more intentful and/or high-value than a mention on another social media platform. On Twitter, for example, “stock” has been mentioned 5M times this year, while Reddit saw only 635K mentions, looking between January 1 -27, 2021. The general public was able to dominate the conversation on Reddit, seemingly quietly, and organize action. This was not an event where a high volume of social activity flew under the radar. It was an event where there was a continuous build in social activity for a select few brands, at a level that most would historically discredit as not notable.
Also worth noting is the importance of using social listening to identify high upvoted posts on Reddit. For example, on January 13, a r/WallStreetBets post that received a high Reddit post score of 801 (meaning upvotes – downvotes), talking about how targeted hedge fund Melvin Capital was only half out of GameStop, and that the stock could continued to be squeezed for days. Amatuer investors were largely influenced by this post and saw it as a green light to become even more aggressive in buying GameStop. The stock price in GameStop jumped to $31.40 on January 13 from being $19.95 on January 12; and continued to skyrock from there; as of January 28, closing at $193.60.
Reddit posts can go in far more depth than the character limited Twitter; meaning individual Reddit posts can have an outsized influence on moving the need around publicly traded companies. Along those same lines, after ensuring you’re tracking Reddit mentions in ListenFirst for all brands, topics and people of interest, it is recommended to focus your analysis on changes in volume over time, rather than the total volume itself. This will provide insight on when the general public is more/less interested, and when there may be a momentum shift worth digging into further.
This doesn’t mean that brands have to spend hours surfing Reddit looking for breadcrumbs of an emerging trend. By integrating social listening with such external data as stock prices through an open API, these patterns can be identified and reacted to faster and more effectively.
Want more insights how Reddit is driving audience behavior? Request a ListenFirst demo today!