All it takes is an impulsive gesture at a media event, or a 2 cm headline in a newspaper, or a 180-word tweet. The market capitalisation (m-cap) of companies — be it a freshly listed start-up or a decade-old corporate behemoth — can come crashing down in a matter of minutes.
The most recent, and obvious, example is the Euro 2020 press conference in Budapest that Portuguese football star Cristiano Ronaldo addressed on June 14, ahead of his team’s first game of the tournament. Spotting two bottles of Coca-Cola placed on his table, he quickly moved them away and shouted ‘Drink water!’ in Portuguese.
The 36-year-old then brought out his own water bottle that stayed with him through the media interaction. The video soon went viral and Ronaldo earned much praise for leading by example.
Coke loses fizz
Then came the twist in the tale. Coca-Cola, an official sponsor of Euro 2020, saw its share price drop from $56.10 to $55.22 almost immediately after the event. Since the company is a massive entity, and is majority owned by public shareholders, the 1.6% fall in its share price translated into a $4-billion plunge in its m-cap, from $242 billion to $238 billion.
A company’s m-cap is share price multiplied by the number of shares outstanding. So, when the scrip loses or gains value, it immediately reflects on the m-cap.
This would be the most recent example of how the vagaries of popular perception can impact a company’s share price. That carbonated beverages are unhealthy is hardly breaking news —Coca-Cola’s customers as well shareholders are fully aware of it. Yet, the minute a celebrity made known his disapproval of the product, shareholders feared that it would lose its popularity, and the share price crashed immediately.
And Ronaldo is no mean celebrity. His social media following is immense, including about 300 million followers on Instagram alone.
The world of brand management is full of past examples of how celebrities can make or break a product. And the financial sector has several tales of how a single piece of news can leave stocks zooming or plunging. The Ronaldo incident was a combination of the two.
The Tesla adventures
On similar lines, Elon Musk has had the share price of Tesla, the electric car company he co-founded, tumbling with a few tweets in the past. In August 2018, he tweeted that he had “funding secured” to take Tesla private at a price of $420 per share. As it turned out, he had done no such thing; he had only held exploratory talks with a potential Saudi investor that went nowhere.
But the spur-of-the-moment tweet left Tesla’s share price crashing and the American stock market regulator, the Securities and Exchange Commission (SEC), belligerent. The SEC charged Musk with securities fraud, which the corporate honcho eventually settled. He also agreed to step down as chairman of Tesla, and gave an assurance that he would have company lawyer vet his tweets before they are posted.
That, however, didn’t stop him from tweeting in May 2020 that Tesla’s stock price was “too high imo (in my opinion)”, and inviting the SEC’s wrath all over again. That is the extent of correlation between individual actions and share prices.
Even hint of ‘news’ will do
It doesn’t even have to be ‘correct’ news, as Indian investors found out recently. In April, when the nation was in the throes of the second wave of COVID, a severe scarcity of oxygen supply made headlines.
This was enough to spur a giant 256% jump in the share price of Bombay Oxygen Corporation Ltd. Its investors expected the company to make big gains from the supply shortage. What they failed to note was that Bombay Oxygen, a non-banking financial corporation (NBFC), had stopped manufacturing oxygen a few years ago. Headlines with no bearing whatsoever for the company had led to a giant surge in its share price.