In recent months, with Facebook’s public value under scrutiny, investors have dug a little deeper to see how its infrastructure could produce results. The social media giant’s milestone of one billion users didn’t seem to impress investors, as the company’s stock dropped a point that day. And even sheer volume of connections on Facebook doesn’t seem to say much, according to one study, as evidenced by Research In Motion’s numbers. Blackberry’s Facebook page has over 12,000,000 “Likes,” yet its stock has decreased by 39% over the past year.
Instead, the study points to “brand advocates,” or as we often call them, “content creators.” These overly-active users frequently recommend brands to others and bring companies to the social media forefront, as opposed to most users, who will “Like” a page once and never interact with it again. The research found that “brand advocates create twice as much brand content, are 70% more likely to seen as a good source of information by others and are 50% more likely to influence a purchase decision.”
But the key, according to one analyst, is not connections, but the change in connections that counts. Arthur J. O’Connor, a long-time risk manager and current business Ph.D. student, wrote a paper that directly connects fan-counts and share price. “It’s like high school,” he said. “Does being really popular help you win friends [or] help you enhance your performance? And it turns out that, yeah, popularity does seem to help brands.”
O’Connor took 30 of Facebook’s most popular brands and tracked their market performance for over a year. And when comparing their results to their Facebook popularity, he found that 99.95 percent of the change in stock price correlated in some way with how much attention the company received on Facebook. He doesn’t say, for sure, that Facebook popularity precedes market success, but more so that the two go hand-in-hand.
To me, this chicken-and-egg scenario tells us more about the importance of a strong, positive presence on Facebook rather than the possibility of a crystal ball for Wall Street.
But the research is just beginning, and at least one new analysis is out to prove me wrong. The “Wired Social Index” collects data from 9 of Facebook’s “most-liked” companies, including Coca-Cola, McDonalds, and Starbucks, and wants to show “whether the Facebook platform is helping to create and enhance top brands or whether it is simply a showcase for them after they have already become successful.” If it’s the latter, Facebook and Wall Street may be in for a rocky relationship.