4 min read

The Celebrity (and Reddit) Effect

With the shifting demographic of investors comes a shift in mindsets – young investors want to back brands they consume and believe in. This has opened the door to a new world of market influences and factors that investors now need to take account of, including the impact of celebrity endorsements on publicly-listed companies and their stock performances.

We’ve all seen the story – last month Elon Musk tweeted two words that caused a stock to shoot up. Those words? Use. Signal.

With one single tweet, Musk caused Signal Advance’s market cap to rise from $55 million to $660 million in just two days. But what is Signal Advance? It’s not the messaging app – it’s a completely unrelated biotech company.

Elon went on to advocate for Bitcoin on new social media app Clubhouse, and even added #Bitcoin to his Twitter bio, sending the cryptocurrency skyrocketing.

In 2018, when Weight Watchers (WW) signed on DJ Khaled as an ambassador, the company’s stock surged 7%.

What’s even more interesting is the potential for negative impact. In 2018, Kylie Jenner said she didn’t like Snapchat’s new interface, causing the social media giant to lose $1.3 billion after its stock plummeted 6%.

But if you’re like me and have never used a Snapchat filter, or don’t follow an influencer’s every move on social media, you may have been left out of the loop.

So, here’s my take:

  1. Hype: Younger generations are more passionate about brands they can relate to, and that by itself builds hype around brands. This paired with a celebrity endorsement, such as Elon Musk’s, could send a company’s shares to shoot up. A great example of this is the acquisition of Supreme for $2.1 billion; the streetwear brand built extreme hype with its limited drops and affordable luxury prices.
  2. Reputation: Having a celebrity endorsement, let alone that of the richest man in the world, naturally leads to positive brand reputation. This can do wonders for a company and its stock performance, especially if the celebrity’s followers are the brand’s target consumer or investors.
  3. Company performance: As an endorsement brings more hype and excitement around a certain product or company, what follows is a jump in revenue. For example, after Elon’s tweet about messaging-app Signal, the app became the number one downloaded app across multiple app stores.

Celebrity endorsements seem to be a new market influence to watch out for. Is it because of how quickly information disseminates in the age of social media? The power of Twitter has been seen far and wide. Or, is it because of the new wave of young investors trading on new mobile-first trading apps? Perhaps it is the deadly combination of both.

Even without celebrity endorsements, we have all seen or felt the influence of social media. When Zoom Video Communications (ZM) made its debut on the stock exchange in early 2019, Zoom Technology (ZTNO) – a Chinese company – jumped 80% in just two hours of trading. Or in 2013, as investors were awaiting Twitter’s (TWTR) IPO, Tweeter Home Entertainment Group gained 1000% (after the stock mix-up, Tweeter’s ticker was changed from TWTRQ to THEGQ).

The launch of forums has further put the power of social media influence into the spotlight, as we have seen with the recent short squeeze ‘battle’ involving Reddit feed /Wallstreetbets and hedge funds. Leading Redditors were able to influence a wave of investors to buy and hold shares such as GameStop, AMC and Nokia, and the hedge funds that were shorting the respective stocks certainly felt the heat. In the midst of all this action, Musk tweeted “Gamestonk”, sending GameStop shares even further.

In the days that followed, GameStop surged, hitting a high of over $480 before plummeting back to earth at around $100 a share. While the stock seems to have stabilised, the driving forces behind this historic market event – young investors backing what they believe in – are likely here to stay.

There is a wave like we’ve never seen before – the new generation of wealth creators care about causes that are important to them and look up to role models and leaders who are disrupting industries. My takeaway? It’ll be a while before I make my first TikTok video, but I’ll definitely be keeping an eye on those forums.

Feras Jalbout
4 min read