Junior companies in space race

Posted in Guest Blogs

Most of the 2,000 or so companies on the Australian Securities Exchange shout into an empty room when they release their announcements.

Only the biggest 200 get much press or broker coverage. This is because both the business press and stockbrokers cover only companies with the most shares, the most customers, the most employees and the biggest effect on the economy. Talk to the directors of small companies and they will tell you it has never been harder to get publicity in newspapers and junior companies must compete for the shrinking space. They are in a space race.

Three trends are changing the way companies get their news to investors. One is economic, the second is technological and the third is financial. They are:

  1. Newspapers are getting smaller and their circulations are shrinking as their advertising revenue dries up. They are not only employing fewer journalists, they are sacking ones they do have.
  2. Investors want information immediately and smartphones have put the internet into people’s pockets.
  3. Investors who trade online, manage their portfolios online and research online are embracing social media as an alternative to expensive news feeds from Bloomberg and Reuters.

The convergence of the three trends means companies can reach investors with information they value direct through social media. Junior companies have been freed from the need for traditional coverage and can also position themselves as authoritative sources that investors opt in to follow.  However, the biggest mistake companies make when trying to use investor social media is to unthinkingly adopt a consumer social media model. After all, an iron ore company does not sell any more iron to a steel mill because of its Facebook page. A biotech company working on a cure for cancer does not even have a product to sell.

Being successful in investor social media takes mastery of three skills:

  1. Journalism expertise is needed to see the many newsworthy aspects of a company and its sector that its executives take for granted. They mistakenly think that ASX announcements are the only communications worth sending to investors. Journalism skills are also needed to craft posts on social media in ways that engage investors.
  2. Market knowledge is needed to know how investors think, what they value and what is important. Market knowledge is also needed to talk to investors with the right level of assumed knowledge.
  3. Social media skills are needed to use the new platforms effectively, to find people who value market information, to engage them with information they value, and to provide information in formats that suit the channels it is posted on.

However, few people have mastered all three skill sets. People who know social media are often too young to have much market experience. People with decades of market experience have rarely developed a news sense. Most journalists have little idea how to run a social media campaign.

Astounding results

When all three skills come together, the results can be astounding.

One client – a junior gold company that was about to transition from explorer to producer by pouring its first gold – had a problem. Corporate raiders were trying to oust the board and take control of the company on the eve of the gold pour, which was expected to send the share price soaring. Instead of launching a normal takeover and paying a premium for the shares, the raiders called an extraordinary meeting to have shareholders vote out the incumbent directors and replace them with the raiders. The company needed to mobilise shareholders and make them aware of the skulduggery. It needed them to vote down the raiders.

Using social media, we were able to get the full story to between 50,000 and 115,000 investors, stockbrokers, analysts, wealth advisers, fund managers, corporate finance executives, asset consultants, business journalists and others every two weeks in the run-up to the shareholder meeting. Our efforts worked and at the meeting, shareholders rejected the raiders, and the incumbent board maintained control and could oversee the first gold pour, which produced income for the company. Another client, a financial services company, used social media to take news of its new contracts and rising profitability direct to the market.

In the process, it increased the number of its shares sold each day from an average 100,000 to 400,000 after its investor social media campaign began. This increase in share liquidity validates studies by Victoria and Stanford Universities into the power of social media, which shows that when companies use social media to amplify their announcements, they reach more investors. Engaging more investors also narrows the bid-ask spread, the studies found. That in turn makes the shares more attractive to more investors. It creates a virtuous circle.

For more tips, strategies and tools for investor social media, you can follow my company Investor Torque on LinkedIn, @InvestorTorque on Twitter, or go to the website www.investortorque.com

By David Coe, managing editor of Investor Torque