When celebrities vent their spleen via a scathing tweet, the companies and brands in their sights often feel the impact not just in the bad press but in the share price.
Recently, reality star Kylie Jenner tweeted she was ‘sooo over’ Snapchat. Her tweet read: "sooo does anyone else not open Snapchat anymore? Or is it just me... ugh this is so sad."
While Jenner may not be your typical idea of someone capable of moving Wall St with a simple phrase – it would appear that when she speaks the market takes note.
Share price plummets
Snap Inc.'s shares fell more than 6% in trading following her tweet, representing a loss of about $1.3bn in market capitalisation.
The fact that Jenner has a huge number of followers on various social media platforms, including Twitter and Instagram means her comments, good or bad, can go global in seconds.
No doubt given the out-of-the-blue nature of Jenner’s comments, many investors in Snap will have taken a hit when the share price plummeted. Which begs the question: How perilous are celebs to your trading?
The answer is that celebs can have a seriously detrimental effect on your trading.
A recent study at the Kellogg School in the US by Assistant Professor Brayden King shows that the longer the media covers a boycott, the greater the impact on a company’s stock price. King discovered that the stock price of a targeted company dropped nearly 1% for each day of national print media coverage. And one thing that will keep a story in the headlines is a celebrity allied to the cause.
A recent example is the call for a boycott of companies that have relationships with the National Rifle Association (NRA), including tech giants Apple and Amazon, as well as other major companies such as FedEx and Roku.
The NRA-related boycott is backed by a group of celebrities including actors Alyssa Milano and Will and Grace star, Debra Messing.
Amazon and Apple have been targeted because both carry the NRA TV app which distributes original content produced by the NRA. FedEx is on the list because of discounts offered to NRA members.
Apple, Amazon and FedEx all saw their share price drop immediately following the celebrity endorsement of the boycott. And while all stocks have recovered to some degree since then, this story may gather momentum with further impact on stock market performance.
For instance, we are already seeing major corporates distancing themselves from the NRA with the likes of Delta Air Lines, United Airlines as well as car rental companies Avis and Hertz cutting ties with the association.
The First National Bank of Omaha has also confirmed it will stop issuing NRA-branded credit cards.
As far as reputation is concerned, the pressure builds to take an anti-NRA stand the more corporates withdraw their support or ties with the organisation. And if, God forbid, another mass shooting occurs in the near future, then the pressure builds even more and the reputational damage intensifies.
To some extent, corporates who decide not to bow to public opinion or activist pressure, walk a tight-rope as there are no assurances that press coverage will die down especially if another scandal or tragedy strikes. It is a gamble.
But it is not always the case that the celebrity plays the role of the good guy – exposing the unethical practices of the giant corporate. Over the years we have seen scandals surrounding brand ambassadors such as Tiger Woods and Lance Armstrong really hit companies where it hurts – in profits and reputation.
In both instances, these sportsmen led their field and their success was rewarded by hugely lucrative sponsorship deals. After Armstrong’s performance-enhancing drug scandal, a string of sponsors including Nike, Michelob and Trek Bicycles dropped him.
Tiger Woods admission of marital infidelity in 2009, was followed by a number of cancelled sponsorships over that and the following year. Gatorade, AT&T, Accenture and Gillette all decided to sever ties with the sporting legend.
Significantly, Nike, which signed Woods in 1996, stood by their man and the player continues to wear and promote Nike golf clothes and shoes. Clearly, Nike saw Woods in a more favourable light to Armstrong – no doubt owing to the fact that as far as the sport itself was concerned, Woods had at no time been branded a cheat or his stellar achievements on the course called in to question.
This does not mean Nike was not hit by Woods’ fall from grace or his loss of form and fall in the world rankings.
In 2009 it was estimated that Woods break from professional golf, would shrink audiences by up to 50% and leave Nike with a $30m loss in sales. Another study from the University of California suggested that he sex scandal that engulfed Woods may have cost shareholders of companies endorsed by the world’s No. 1 golfer up to $12bn in losses. Indeed, if it wasn’t for Tiger Woods’ infidelities, we may never have seen the launch of reputation risk insurance.
Launched by DeWitt Stern, the coverage works to protect brands, corporate entities and advertisers against losses spawned by reputational risk crises.
Woods infidelities, loss of form and enforced absence from the sport due to injury – undoubtedly affected Nike’s profits and insurance would have softened the blow. What also softened the blow a little was the arrival on the golfing scene of Rory McIlroy who was swiftly snapped up by Nike. The Northern Irishman last year signed an extension with Nike worth around $200m over a 10-year period.
While the falling reputation and standing of one celebrity might impact a company’s bottom line; the vacuum can often be filled (at a price) by the next rising star.