How social media strikes markets: Analyzing GameStop (GME) utilizing social listening knowledge

After five years of downward movement, GameStop (GME) shares soared this week, from a closing price of $ 4.28 per share on Jan. 27, 2020 to $ 345 on Jan. 27, 2021, a year later. This morning, stocks hit $ 490 before trading.

What drove that 7,200% increase in GME – and a 689% increase just last week?

In a word, Reddit. What started with a thread on r / WallStreetBets, a community where more than 3.1 million subscribers discuss aggressive trading strategies, led to such a sharp increase that trading on GME was halted several times. Nasdaq President and CEO Adena Friedman said Wednesday that the stock market would potentially stop the stock if it detected unusual trading activity, consistent with conversations on social media.

“We’ve definitely seen a significant increase in retail participation in the market over the year,” @adenatfriedman says. “We have technology that evaluates social media chatters … and compares that to unusual trading activity – we may stop this stock.” pic.twitter.com/UWvg53YFI6

– Squawk Box (@SquawkCNBC) January 27, 2021

But while the conversation started on Reddit, it didn’t stay there long. Using Sprout Social’s Advanced Listening, we tracked the surge in conversation about GME related to social networks over the past week and analyzed this along with price fluctuations in the stock to identify topics in social chatter.

Read on to understand how social media has impacted this extreme volatility, and how social listening can help financial institutions and corporate issuers gain insight into real-time analytics.

Follow the trend: How the GameStop run has developed

As reported by Slate’s Alex Kirshner, a Reddit user posted a post on the r / WallStreetBets community in September 2020 with the title “Bankrotting Institutional Investors for Dummies, ft. GameStop”. Kirshner writes:

The subredditor found that the stock was already in significant short exposure (months before Cohen joined the board of directors) and predicted that short sellers would be forced to abandon their positions and go up in price when they buy back their stock. R / WallStreetBets users were excited about the idea and used it as an opportunity to encourage each other.

This post would mark a nearly 20-year low process in GME stocks, still trading below $ 10 at the time. This week stocks rose above $ 372 and trading has stopped multiple times.

The social conversations around GameStop and r / WallStreetBets have intensified in the past week. From January 20-27, there were over 82,000 Reddit mentions of “GME” on Google, and Sprout Social Advanced Listening recorded over 1,582,000 tweets and 1,465 YouTube videos about GameStop. In the same period, the conversation on Twitter and YouTube alone had a potential reach of almost 10 billion impressions and generated a total of almost 12.8 million social engagements (likes, comments and shares).

To put that growth into context, when we compare the conversation on Twitter and YouTube from January 20-27 to the previous week, we see the following:

  • Increase in topic volume by 2,805%
  • Increase in potential reach by 3,041%
  • Increase in social commitment by 4,521%

How did social conversation volume correlate with GME price volatility? Nearly perfect. As the chat volume on social channels has increased over the past week, the stock has also increased. The growing commitment to social and social insights into the context of what has been said could have prompted market participants to take a closer look.

General topics in the Twitter and YouTube conversation about GameStop (GME) between January 20-27, 2021 included:

  • Reddit: Unsurprisingly, Reddit was one of the top keywords in the conversation, having been hashtagged and mentioned 128,425 times. “Reddit users” have been mentioned more than 70,800 times. The hashtags #WallStreetBets and #WSB, both of which refer to the community where the GME conversation started, were used 30,944 and 18,871 times, respectively. Overall, the Twitter and YouTube conversations about GameStop with #WallStreetBets or #WSB increased by 22,674% from January 20th to 27th compared to the previous week.
  • Congress: On Twitter, Congress was mentioned more than 50,200 times when users speculated about how quickly Congress would pass new laws regulating the stock, compared to the delay in passing $ 2,000 stimulus checks.
  • People: The word “people” appeared in more than 190,400 tweets, as the media and social story focused on the power retail investors can wield over a system that favors the rich. Much news, including one from Gravity Payments CEO Dan Price, says the GME and the brief bottlenecks that come with it are simply real people doing what financial institutions have always done.
  • Hedge funds: Mentioned more than 76,400 times, hedge funds have been positioned as the Goliath for David by Reddit users, and the conversation has centered on the forced withdrawal of hedge funds after heavy losses. Many users on the thread have been delighted with the financial problems that have been inflicted on hedge funds.

Other stocks, including AMC Entertainment Holdings (AMC), Express (EXPR), and Bed Bath & Beyond (BBBY), saw the wave, posting a similar surge. In conversation about GameStop on Twitter between January 20 and 27, 2021:

  • AMC was mentioned in more than 233,000 messages about GameStop, and the hashtag #SaveAMC was used in 4,834 messages.
  • EXPR has been featured in more than 12,280 messages on GameStop.
  • BBBY has been mentioned in more than 15,860 messages about GameStop.

As of this writing, GME shares opened at $ 265 on Jan. 28, and we’re seeing more than 751,300 Twitter and YouTube mentions of GameStop this morning as the conversation continues.

What we can learn from GME and social listening

While a Bloomberg terminal, lagging financial data, and a thorough understanding of the fundamentals of business can help predict where a company is going, the volatility we’ve seen with GME, AMC, and other stocks shows that social media can disrupt market models in a moment .

If there was a question of whether social media could move markets, 2020 solidified the answer. President Trump’s tweets often drove market volatility, as Bloomberg saw before Twitter banned it, and a tweet from tech billionaire Elon Musk – the SEC’s Twitter persona non grata – got the messaging app Signal ranked number one on Apple Appstore .

However, 2020 also showed that the COVID-19 pandemic had a very different impact on Wall Street than the average American consumer, as markets rose while unemployment hit low-wage workers disproportionately. This climate sparked the fire of social media communities like r / WallStreetBets, where posts about GME fueled the narrative that hedge funds were the money losers on the wrong side of the trade.

There is no better source of real-time customer conversations than social data. As social media communities mobilize to radically influence market behavior in ways never seen before, there is also a new source of market influence. Consumers cannot and will not be ignored and have been proven to mobilize on social media. Combine that with the huge social media followers of industry influencers like well-known VC Chamath Palihapitiya and you have a recipe for rapid market volatility.

How to Use the Power of Social Data

As we saw in Friedman’s statement, companies like Nasdaq use social media conversations to understand and research market trends. Analysts who need the ability to accurately forecast business finances – and quickly change that forecast as the world around them changes – can use social listening tools that provide an investment advantage. This starts with competitive analysis, market trends and demand planning.

Amid unprecedented volatility, advanced social listening has become a necessary tool to optimize the risk / reward calculation that is at the heart of most Wall Street investment decisions. To reduce portfolio risk, it is important to understand what is being said about companies on social media before it shows up in stock price volatility.

In this new environment, it is now important for issuers, executives and board members of companies to keep track of social data.

Advanced social listening can do more than just forecast. It can also allow users to:

  • Track investor perceptions and sentiment to monitor risk and allow quick adjustment to negative trends or reputational crises
  • Understand consumer perceptions and do due diligence outside of normal channels
  • Provide insights into unique elements of a market that can help predict fundamentals and stock price performance
  • Monitor competitors’ messages, moves, and feelings and know when to act
  • Identify financial influencers and market drivers to watch

If your company wants to incorporate rich social information into your forecasting toolkit, schedule a free, bespoke demo with one of our team members today.

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