Hungry for investors, some companies woo the little guy
After CarParts.com reported its quarterly results last month, executives at the company, which sells replacement auto parts, did what many of their ilk do: They held a conference call with Wall Street analysts, fielding questions about inventory levels, profit margins and corporate strategy.
Roughly 30 minutes later, the same executives were on Clubhouse, hosting an entirely different kind of audience. Their 2,000 or so guests had gathered at the buzzy online meeting spot to learn about the company. Their questions were far more straightforward. How did the business work? Why was CarParts.com able to offer lower prices than brickand-mortar rivals? Were CarParts. com shares worth buying?
David Meniane, CarParts.com’s chief financial officer and chief operating officer, called the session an experiment.
“We’re trying to disrupt the way people fix their cars,” he said. “Is there a way for us to disrupt how retail investors communicate with management?”
As the stock holdings of American households have soared to a record level over the past year, dozens of companies are suddenly paying more attention to individual investors. Some, like CarParts.com, are trying to transform newly minted traders of Reddit-fueled viral “meme stocks” such asGameStopintodedicatedshareholders. And some of those meme stock companies, including GameStop, are issuing new shares.
“The individual shareholder is back,” said Lawrence Cunningham, a professor at George Washington University Law School, who researches corporate governance and runs a research project that studies individual shareholder behavior. “Corporations would do well to pay attention and cultivate them.”
Small investors who buy single stocks have not been a major force in financial markets for the better part of half a century. In the 1960s, such investors controlled more than 85% of the stock market, with most portfolios built around concentrated holdings in a few blue-chip companies.
But in the 1980s and 1990s, as people
moved their money into mutual funds and 401(k)s, large fund managers and Wall Street analysts became the constituency most important to corporate America. According to SIFMA, a brokerage industry lobbying group, individual investors owned just 38% of the stock market in direct shares in 2018.
Such investors were growing in influence before the pandemic, partly because of the popularity of free trading apps such as Robinhood, which meshed the buying and selling of stocks with gamelike features. And companies like Tesla have long had a loud and loyal base of investors who follow founder Elon Musk’s missives on Twitter.
But with millions of Americans stuck at home during the pandemic, the trading trend escalated. According to the Federal Reserve, American households bought roughly $211 billion in individual stocks last year the highest level since 2014.
“Retail trading now accounts for almost as much volume as mutual funds and hedge funds combined,” Amelia Garnett, an executive at Goldman Sachs’ Global Markets Division, said on a recent podcast produced by the firm. “So, the retail impact is really meaningful right now.”
There’s no telling how long Americans will keep their pandemic-bred focus on the market. Average daily trading volume at some large brokerage firms is down sharply from its peak in January and as vaccinations continue and the economy reopens, newly mobile Americans may be less interested in picking stocks. But companies, awakened to the power of individual investors, are seizing the moment and finding new ways to engage with them.
“It’s forced companies to understand the importance of retail investors,” said Zach Hascoe, a cofounder of Say Technologies, a New York startup that sells shareholder communication services to companies and brokerage firms. “Companies are seeing the opportunity to kind of tap into shareholder loyalty, tap into that passion.”
Say Technologies offers a socialmedia style platform that allows companies to field questions from verified individual shareholders at key corporate events. Investors can pose their questions on Say’s message board, which can then be up-voted, Reddit-style, by other participants.
Tesla, which has long eschewed traditional communications with Wall Street, is perhaps the bestknown user of the service. Ark Investment Management the high-flying, tech-focused exchange-traded fund company run by the investor Cathie Wood and Palantir Technologies, another favorite among individual investors, have also used it.
Before Lemonade, a company that sells insurance to consumers online, went public in July, it went on a traditional tour of Wall Street, meeting big investors and talking up its prospects. However, the company has since discovered that over half of its shares are held by small investors, excluding insiders who own the stock, CEO Daniel Schreiber sid.
That has prompted a strategy adjustment. In addition to spending time communicating with analysts whose “buy” or “sell” ratings on the stock can move its price, Schreiber said, he has made a point of doing interviews on podcasts, websites and YouTube programs popular with retail investors.
“I think that they are, today, far more influential on, and command far more following in terms of stock buying or selling power than the mighty Goldman Sachs does,” Schreiber said. “And we’ve seen that in our own stock.”