Here at mediaQuant, we’re all about quantifying the news — earned media in traditional, social, and search channels. And we applaud our peers when they introduce an innovative media analytic.
I usually return to my market research roots when looking at new measurement approaches. One of the fundamental elements of any analytic or scientific method is the study of inputs and outputs, along with possible correlations.
But when it comes to press releases (input) and stock price (output), well let’s just say there are numerous variables at play, some of which produce counter-intuitive results.
New tool from Business Wire
This all came to mind when I read about a new tool from Business Wire (in partnership with News Quantified) that claims to show the impact company press releases have on stock price.
First, let’s state the obvious. With the exception of earnings, M&A and actual stock announcements, press releases are not designed to move stock prices. Mind you, I don’t want to downplay the importance of earnings announcements as they’re a vital link between a company and the investing public.
But when you dissect an earnings release, or participate in an earnings call, you quickly realize the “numbers” are really just a backdrop. The real storyline is about product introductions, market expansion, critical hires, R&D developments, partnerships, supply chain improvements, etc. And guess what? These events take place throughout the referenced quarter, not just on the release date.
That last point is critical.
A release may reference a stock-sensitive event, but from a trading perspective, the release itself is so removed from the timing of referenced events that pointing to it as a trading indicator is very misleading. And as many marketers will tell you, in a digital, inbound marketing world, press releases are old-school-outbound, self-serving and increasingly disingenuous – essentially the opposite of what companies strive for.
As my father would always say, lead by example. Take any public company. It issues a second quarter earnings announcement and the stock advances 5%. First, it’s not the “release of information” that lead to the price advance. It was possibly something contained within the release – some event, data or indicator – that created the 5% market response.
But then again, it could also have been something completely unrelated to the release.
I’ve worked in PR groups and agencies and trust me, press releases are scheduled for all kinds of reasons. Some to avoid coverage, some to further an embargo strategy, some to sync with partner announcements, some to side-step market market dynamics, some to get the right quotes lined up. All too often the reason is simply one of convenience.
But if you put yourself in a traders shoes, these “marketing” reasons are meaningless. As an investment professional you make it your job to monitor and measure stock activity over time down to the second. You compare pricing data to everything else you know about the market. There’s a reason why the Bloomberg terminal has 20 different screens each containing a catalog of real-time market data. And guess which is the most popular part of the Bloomberg dashboard? The chat module! Traders maintain their own hidden pipeline of news, company updates, and insights.
Here’s what I believe works
Media analytics are just one (of many) inputs into a better understanding of how and why a price behaves the way it does. It will have a correlation value, but it’s not direct. It’s peripheral but important (I’m a little biased here running a media analytic company). A media impact or prominence metric should be one data point on the Bloomberg dashboard, not an isolated number that is promoted as a stock driver.
But the most important point to remember is simply, measure the media impact – the downstream media coverage from the events referenced in the press release. This is where market impact and relevancy truly begin. Look at all the critical media segments. Measure the uptick in social media channels. Determine whether the company’s customers, partners and suppliers are interacting with (and searching for) the events, products, and innovations contained in the press release.
It’s a noble analytic endeavor, yet making this type of claim distracts from the core goals of IR and PR functions and panders to the all-too-common stock-frenzy mindset of executives setting IR and PR budgets.
Use (or misuse) of company press releases
For companies still intent on using press releases, the objective is simple. It’s one vehicle to help get media coverage. On their own, surprise, press releases have near zero credibility. And unless the event is picked-up by the right mix of media sources, any release is essentially worthless.
With that said, the post-release coverage of the underlying event(s) can move a company’s stock price because it can/may originate from credible sources. If the NY Times runs a column on your earnings announcement the stock will likely move. Why? The NY Times is (1) credible and (2) reaches millions of readers (and just as many investors)..
Secondly, markets are pretty smart – like super-duper-uber smart – when it comes to building news into a stock’s price. And they do this WAY before a press release is inked. Actually there’s more support for shorting a stock on the press announcement, i.e., the stock will decline, as the market has already run-up the price in advance of the “official announcement” and typically takes the profit when the general media (and press release) hits the “wires”.
This leads to the third issue with release-stock-price correlations.
By and large, the media prefers to cover topics, issues, and trends that affect their audience. If a press release touches on these topics, then it MIGHT get some attention from the media. But editors are loathe to include release references as they’re biased and undermine the outlets credibility.
So, is there an approach here that does work?
In my opinion, not really.
I wish there were because every investment banker would be my best friend. Chasing stock price with media analytics sounds good, but in practice the markets tend to have their own hyper-news channel called research departments along with a network of industry insiders. These guys are paid a lot of bank to know what’s going on before the media does. They anticipate company actions based upon broad and trending industry issues and topics. The retail sector analyst at JPMorgan already knows the event plans at Walmart before the earnings announcement.
The better gauge of stock movement is to ask the company’s customers, partners, and supply chain partners if the events contained in release will lead them to increase or decrease business with said company. Including media analytics as part of the IR/investor toolkit is a good step, but leading with a press release correlation claim over simplifies market dynamics. Also, looking at multiple media channels downstream of company events and actions is an excellent data source, i.e., mediaQuant metrics!