Corporate Reputation

The Reddit Rally: What the Short Squeeze Saga Means for your Company’s Reputation

A few weeks ago, the share price of select stocks skyrocketed thanks to heightened demand from retail investors in a forum called WallStreetBets on social media platform Reddit, betting against hedge funds that had heavily shorted them. Some shares hit their all-time high after trending on social media.

These stocks’ spike in value was not due to any material changes within the companies or any macroeconomic events, but instead was a product of the moral beliefs of a group of people online, who decided to squeeze funds out of a short position that was publicly disclosed. A stock rally like this is not limited to any one industry or timeline. Here are a few broader implications of the short squeeze saga on corporate reputation.

Your company and your stock can go viral

From bread-baking to coffee-making, to dance moves and comedic memes, prior to what unfolded with trading in the last couple of weeks, it was easy to believe that viral trends were only the stuff of entertainment. Social media, however, has more recently begun to serve as a tool for resistance amid civil uprisings (e.g., #MeToo, #BlackLivesMatter) – unifying likeminded people and facilitating effective and instantaneous multimedia communication at mass scale.

That scale, with social media’s inherent power to evoke emotion, has so far been leveraged across e-commerce and social media marketing. Now, we see that finance, investors, and the emotions that have always kept financial markets afloat (like fear and greed) live on social media too – stocks and companies themselves, not just brands, people, or products, can “go viral.”

Like memes – funny photos, videos, or text spread rapidly by internet users – specific stocks (increasingly being dubbed “meme stocks”) can grow very popular with online retail investors very quickly, suddenly inflating in value following explosive demand.

With increasing reach and influence, social media and its trends are not in anyone’s control. Sudden and widescale scrutiny and attention from countless people can happen at any time and for unforeseeable reasons (like in the case of the recent Reddit-fueled stock rally, where people in an online forum decided in unison to take bets on certain stocks). This can prove beneficial or harmful, temporary or lasting, depending on a company’s response. Knowledge and acceptance of this can allow for better, more strategic, and holistic communications and crisis-response planning.

Your stakeholders aren’t just who you think they are – now, they can be anyone

Though retail investors suspect many posts in the WallStreetBets forum are now being made by inauthentic users, or bots, the forum has grown to a bulging 8 million members – that is, roughly 8 million people interested in speculative investing in, quite literally, random companies. “Investors” are no longer professionals and institutions with highly specialized financial knowledge – they now include everyday people with access to a smartphone and a brokerage account.

Regardless of perceived sophistication or lack thereof, this class of investor can devote ample amounts of time to investment research online amid COVID-19 layoffs and lockdowns and can hold the power to move markets and impact companies’ reputations. Retail investors have long been a part of the investment community, but with the scale of influence that social media now affords, they hold increasing power and will demonstrate demand in different ways.

More people than ever before are holding you accountable – you must do what you say you do

This new class of investor and the wildfire-type spread of information characteristic of current times means that like shareholders, almost anyone can now hold you accountable. You must do what you say you do. With the heightened interconnectedness that social media has spawned, now more than ever before, scrutiny from a broader public (not just direct stakeholders) is increasingly likely across industries and types of companies. Businesses must now consider and measure their reputation not only in the face of their perceived stakeholders, but as perceived by anyone, anywhere.

The line between social and traditional media is thinning

What started as a niche thread of speculative stock picks on Reddit, is now recent times’ biggest financial news story, eclipsing broadcast, online, and traditional media coverage for weeks. The divide between traditional and social media, where what is said in traditional media was likely pitched to a reporter but what is said on social media might represent public opinion, is getting narrower. Traditional media now often incorporates social media posts as supporting material.

Key influencers who would typically dominate traditional media coverage of news stories relevant to them use their voice on their personal social media accounts, sometimes before making official statements anywhere else. With this, social media is becoming a place where the news happens, and traditional media a place where it is reported.

Don’t underestimate the power of social media – prepare for, and leverage it

As lawmakers and regulators investigate the volatility around recent trading activity and the actions of both traders in online forums and online brokers, the fact remains that the power of social media is the crux of it all. Now that obscure parts of the internet are moving stocks and driving valuations, are companies preparing to scale their monitoring and social media presence accordingly?

One forum has proven disruptive of one industry, but what could another forum disrupt next? Companies would be well-advised to carefully consider incorporating communications on social media in any kind of strategic planning, not only as a tool for issuing communications, heightening visibility, and amplifying leadership, but as a tool for listening and driving any lasting, positive change.

Related Articles

January 14, 2022

FTI Consulting News Bytes – 14th January 2022

Welcome to FTI Consulting News Bytes – a roundup of top tech stories of the week from FTI Consulting’s TMT (Telecom,...

January 13, 2022

FTI Consulting Public Affairs Snapshot: To CBDC or not to CBDC?

The Mesopotamian shekel is often cited as the first form of money, initially representing a specific weight of barley, a...

January 13, 2022

ESG+ Newsletter – 13th January 2022

Your weekly updates on ESG and more Greetings from 2022! Our first ESG+ Newsletter of the year starts off with a review ...