Thursday, December 2, 2010

The Coming Social Revolution in Online Finance

The online social media revolution of the last 5+ years has touched nearly every facet of society with one glaring exception: Open and direct online conversation between public company executives and equity investors remains minimal.

But as 2010 comes to a close, change is afoot. Public company executives are taking aggressive steps to improve and increase their online and offline investor engagement. They’re choosing novel ways of expanding the reach of their message, especially online.

These moves suggest that social media could finally play the transformative role public companies and investor relations reps have been anticipating for some time and thereby usher in a new age of transparency. This should be welcome news for investors.

Public Companies & Social Media – Pre-2010

For years, some public companies and their investor relations reps largely dismissed social media platforms as relatively useless for targeting investors. They were averse to non-traditional IR and were also concerned about potential legal liability. I encountered some of this reaction back in ‘07 while developing tools to help public companies target investors on my then-company’s website, SeekingAlpha.

But not all companies with whom I met shared this same aversion for social media. In fact, investor relations reps for many small-cap public companies saw “social” as a powerful new opportunity. It afforded them the chance to overcome their usual impediments --- limited analyst coverage, earnings call participation, corporate website traffic, and general attention from both institutional and retail investors --- and pitch their stories directly to a wide online audience of savvy, idea-hungry investors.

I partnered with many small-caps in ’07 to help them test the new online social landscape. Together, we went to great lengths to address disclosure concerns. At the time, there was no doubt SeekingAlpha was the right platform for companies due to the site’s large, savvy investor audience and tools to deliver their messages. And, sure enough, the results were tremendous (more details here). Everyone (public companies, IR firms, investors, SA community) was pleased with the outcomes.

Ultimately, though, SeekingAlpha went in a different direction.

Interestingly, I continue to hear from many of the same small-cap investor relations reps I worked with back in ’07. They’re as ready as ever to push traditional boundaries and test new social investor platforms. The challenge has been helping them identify credible options – most important, finding dedicated investor platforms that have the tools public companies need to achieve their goals (more details here). This has not been easy.

Recent Developments – Earnings Calls

Over this past year many public companies (most specifically mid and large-cap) have caught the social bug. Some have begun using Facebook and Twitter for investor engagement purposes with reasonable success. But, as I’ve written before, these platforms are not the solution. The solution for public companies that typically have limited investor relations resources is to focus their social efforts on dedicated investor platforms. Go where the greatest density of investors is.

But without suitable web 2.0 investor platforms to choose from, public companies have begun taking matters into their own hands. They’ve been revamping their earnings calls to be more social, and have spent substantially more time focusing on their Q&A sessions all in an effort to better engage analysts and investors and be more transparent. Undoubtedly, companies are also aware that due to the plethora of freely available earnings call transcripts on numerous sites online, their message has further reach. And Q&A is what investors find most compelling.

Recent Developments – Motley Fool Q&A

The second major development in the growing story of public companies becoming more social involves small-cap software company Ebix (EBIX). In early October, Motley Fool, the financial analysis and commentary site, hosted a fantastic community-driven question-and-answer session (similar to what I did for companies in ’07) with Ebix CEO Robin Raina. The questions were smart, answers illuminating, and the complex EBIX story is now clearer.

Ebix’s decision to conduct the community-driven Q&A, while remarkable in that it’s uncommon, makes perfect sense. The CEO had a story to tell and specific issues to clarify, and he couldn’t remain limited to his quarterly earnings calls and investor conference presentations to spread the word.

Motley Fool may have a quirky reputation. But it’s a dedicated investor site with reasonably consistent smart analysis, its traffic is substantial, and its audience engaged. And though CEO Raina was expansive in his remarks, he was careful not to reveal any non-public information.

Among IR pros with whom I spoke, Ebix scored strong points for tapping social media, building awareness and reaching new investors.


As public companies take proactive steps to be more social, engaging, and transparent a social media revolution in online finance could very well be on the horizon. The Motley Fool Q&A confirms that it’s a distinct possibility. Tapping the social web would undoubtedly do wonders for public companies everywhere looking to increase the reach of their message and to generate new investor leads.

Could Motley Fool lead the way in transforming the financial web or will companies be forced to continue creating social opportunities for themselves? Only time will tell.

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