Wendy’s recent extreme rise confirms that investor psychology, when powered by social networks, can cause spectacular rises.
Balance sheets, cash flow, sales growth, management forecasts for the immediate future. This quadripartite has been the key tools for decades to assess whether a share was worth raising or retreating. Today, however, a fifth has been added: A viral social media post. Few words can in a few hours create such dynamics to lead thousands of small investors in the same direction. And so turn even a forgotten company into a long-discussed name.
Wendy’s share was ejected last week more than 25% in one session just because it was at the heart of an online campaign. Photo: 123RF
The American fast food chain Wendy’s is the most recent example of this phenomenon. Her share ejected last week more than 25% within a meeting, not because she presented some impressive business plan or announced a spectacular increase in profits, but because she was at the heart of an online campaign, which was launched by Reddit's WallStreetBets community.
Coordination in social media
A message calling on investors to turn their attention to Wendy’s began to reproduce at a stormy pace, while under the suspension hundreds of slogans such as «Let’s save Wendy’s» (let's save Wendy's). All of this created a wave of emotional mobilisation, which was very quickly transferred from mobile screens to stock exchange screens.
It wasn't the first time Wall Street was watching such a play. In 2021 GameStop made history when its share ejected by thousands of percentage points within a few weeks, causing billions of dollars damage to hedge funds that had bet on its fall. Shortly thereafter AMC Entertainment followed, which was also converted into a favorite selection of microinvestors. Corresponding waves of optimism occasionally met companies such as Bed Bath & Beyond, BlackBerry, Express and Krispy Kreme. In all cases, the rise in shares was not exclusively explained by the financial performance of companies, but by the power of collective psychology created by online communities.
In 2021 GameStop—the video games store chain—made history when her stock was ejected within a few weeks, causing billions of dollars damage to hedge funds that had bet on her fall. Photo: 123RF
AMC Entertainment, the largest U.S. film chain, was converted into a favorite selection of microinvestors. Photo: 123RF
Markets now have a new factor
In addition to economic data, valuation indicators and analyst reports, there is now the strength of the algorithm. A topic that becomes viral can attract millions of views within a few hours. Each republished acts as advertising for a share and every new comment enhances the feeling that «Something big is happening.». In Wendy’s case, of course, there was another catalyst. The company had announced changes to its administrative team, which offered investors an account of optimism on which they could «build» their expectations. Of particular interest was the taking up of duties by Steve Cyrilis in the position of Chief Financial Officer and Chief Administrative Officer.
Cyrilis has many years of experience in managing large consumer business and had served for years in high-ranking financial positions in Kraft Heinz. The presence of an executive experienced in corporate transformations and the management of large organizations was interpreted by part of the market as an indication that Wendy’s attempts to open a new chapter. It is a move that causes optimism, but is far from causing security.
The company's numbers, however, continue to broadcast more restrained messages. Wendy’s has been faced with lower traffic in its stores, pressure on sales and a highly competitive environment in the fast food market, where consumers are increasingly looking for cheaper options. In other words, fundamental sizes were not changed within one day. What changed was the market mood.
Steve Cirulis’ entry into Wendy’s offered investors an account of optimism on which they could «build» their expectations. Photo: Linkedin/The Wendy’s Company
The characteristic of «meme stocks»
These are not companies that suddenly become more profitable or acquire better balance sheets, but turn into symbols of an online community. Investors not only buy a company, they buy a story. They participate in a collective experience and often feel they are part of a movement that is against large investment funds. Economic analysis now coexists with emotional charging, memes humor, hashtags and the constant interaction of social networks.
This, of course, does not mean that balance sheets have lost their meaning. Over time, the value of a company still depends on its profitability, investment, growth and ability to produce cash flows. However, Wendy’s case confirms that in short-term market movements psychology can prevail over reason. A successful quarter needs months of preparation. A viral post takes a few minutes.
Οι επενδυτές που θεωρούν τους εαυτούς τους στρατηγικούς εξακολουθούν να διαβάζουν οικονομικές καταστάσεις, αλλά δεν μπορούν παρά να παρακολουθούν και το Reddit, το X και τις υπόλοιπες πλατφόρμες. Εκεί όπου κάποτε η αγορά κινούνταν σχεδόν αποκλειστικά από τα οικονομικά δεδομένα, σήμερα κινείται ολοένα και περισσότερο και από την ταχύτητα με την οποία διαδίδεται μια ιδέα.
Eισαγωγική φωτογραφία: Getty Images/Ideal Image
