Connecting with small shareholders remains a challenge for companies
Executives are turning to new methods, such as tools that analyze tons of data and social media platforms, to figure out who their small investors are and how to reach them, while using traditional approaches like letters and meetings of shareholders. But with individual investors growing in number and dispersed across the country or even the world, it can be much more difficult to connect with them than to communicate with institutional investors.
Companies say it’s important to know who these shareholders are and what they plan to do with their investments. Engaging with them can help them stay investors and attract new ones, especially since some have ventured into stock options and other asset classes like cryptocurrencies and non-fungible tokens. .
“Many retail investors have inquired,” said Kimberly Esterkin, managing director of Addo Investor Relations and president of the National Investor Relations Institute in Los Angeles. “We are seeing an expansion of the types of investments they are making.”
This time last year, a surge in stocks including AMC Entertainment Holdings Inc. and GameStop Corp., fueled by small investors on social media, prompted CFOs, investor relations professionals and other executives to pay more attention to individual shareholders.
The meme stock frenzy helped boost trading volume on major US exchanges to $2.45 trillion last year, from $2.20 trillion in 2020 and $1.37 trillion in 2019, according to S&P Global Market Intelligence, a data provider. Retail ownership as a percentage of total shareholding rose to an average of 18.5% through Dec. 31, from 14.2% a year earlier and 13.9% in 2019, the company said. of IHS Markit data.
“Sometimes you have to listen to people talk and hold hands,” said Phil McPherson, vice president of capital markets at Riot Blockchain Inc., a bitcoin mining company. Mr. McPherson allocates several hours a week to one-on-one conversations with retail shareholders over the phone, often those who contact him directly.
He also exchanges emails with people, explaining the company’s business model and trying to allay fears when bitcoin’s price drops and Riot’s stock price drops. “I had very candid discussions with people,” he said. “Sometimes retail investors can be quite rude.”
In recent quarters, streaming company Cinedigm Corp. has seen wild swings in its share price, which chief executive Chris McGurk attributes in part to the increase in the number of individual shareholders. The company, which was majority-owned by a Chinese private equity firm, now has many small shareholders alongside a few funds that own more than 3% or 4% of Cinedigm’s roughly 170 million shares.
“Retail shareholders have basically found us,” McGurk said, adding that the change has led the company to adjust its communications strategy. Cinedigm now sends general letters to shareholders and tries to interact more frequently with its investors. It works with an outside investor-relations firm that monitors popular online retail communities like Stocktwits, and corrects misrepresentations if necessary, McGurk said.
“Things often take on a life of their own,” he said, referring to individual investors talking about the company in public forums. The goal is to get the company understood, get analysts to cover the stock and avoid volatility, he said. So far Cinedigm, which has been profitable in recent quarters and holds no debt, has had limited success in reducing volatility, with its stock closing at 83 cents on Friday after hitting $2.95 in last October.
Investor relations professionals advise companies to issue press releases to address misrepresentations on social media platforms, instead of engaging in online conversations. “Retail shareholders often copy and paste our responses and post them elsewhere,” said Laura Kiernan, CEO of High Touch Investor Relations. So instead of emailing investors, Ms. Kiernan talks to them over the phone. a mole,” she said.
Another challenge for companies is finding out who their retail investors are and whether a communication tool of choice, for example, a sponsored post on a retail forum, is having the desired result.
Since individual investors do not have to report their holdings of company stock to the Securities and Exchange Commission, like institutional investors with more than $100 million under management are required to do, some companies are trying to extrapolate shareholder information from so-called NOBO lists. These lists of non-objecting beneficial owners provide the names, addresses and numbers of shares for shareholders who do not object to their information being known. However, NOBO investors’ holdings are often a fraction of the total held by all retail shareholders in a stock.
Companies also track data on custodians, organizations that buy and sell stocks on behalf of their retail clients. Srax Inc., a fintech company based in Westlake Village, Calif., identifies them and makes predictions about stock movements, CEO Chris Miglino said.
The company’s data tools help identify individual shareholders and provide information about them. Srax also allows companies to send mass SMS, emails and surveys to their small shareholders. “What we’re doing here is adding a lot of information that companies don’t have,” Miglino said.
Companies are experimenting with short videos and other communications posted on social media, including Facebook, Twitter and Instagram. But whether these messages drive up or down trading volumes or stock prices often remains a mystery.
“That’s one of the problems with this, that we don’t know what works and what doesn’t,” said Mal Karwowska, vice president of corporate development and investor relations at Newcore. Gold Ltd., a mining exploration company. Newcore also puts shareholder-friendly materials on its website and allows people to book calls with the company’s management team through its website.
Investor relations professionals advise against allocating too much time to these one-to-one formats, as they are relatively expensive, especially if the investor in question only holds a few tens or hundreds of shares, compared to thousands or million held by institutions. CFOs and other leaders should instead focus on running the business, Ms Esterkin said.
Companies with consumer-facing products often have an easier time attracting and building relationships with retail investors, while those in business-to-business sectors can struggle to make the connection, investor relations professionals said.
Some companies hold specific events for individual investors to try and build their retail shareholder base, often targeting high net worth individuals. Others advertise on online networks for retail investors, work with influencers, or offer investors perks like vouchers.
“Your customer becomes your shareholder, and your shareholder becomes your customer,” said Agnies Watson, co-founder of Stockperks, a firm that advises companies on their retail investor engagement strategy. “The most popular is giving people discounts every time they buy,” Ms Watson said.
Companies will continue to try different things in 2022, advisers say. “Companies are trying to see if TikTok is a viable way to build relationships with investors,” said Jason Paltrowitz, executive vice president of OTC Markets Group Inc., an operator of stock trading platforms. which largely cater to the trade of small and medium-sized enterprises.
“We still see this corporate desire to go out there and reach that retail investor base,” Paltrowitz said.
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