Why Seeking Alpha is great for investors but uncomfortable for PR people

Editor’s note: We asked David Jackson, the founder and CEO of SeekingAlpha.com, to respond to a post last month from our PR curmudgeon Frankie Flack. Here is his response.

Investor relations and corporate public relations used to be straightforward, because companies could largely manage their own news coverage.

The recipe: (1) build relationships with analysts and the journalists who cover your industry, (2) issue frequent press releases, (3) alert the journalists and analysts to the latest press releases, (4) call them to add color and extra detail, (5) if the journalists and analysts are hostile or sloppy, educate them or cut them off from the information flow.

Seeking Alpha has changed that. Seeking Alpha is the dominant platform for crowd-sourced equity research, with more investors reading articles about stocks in real-time than any other website or platform, and more contributors than there are sell-side analysts. Because Seeking Alpha’s contributors are opportunity-driven investors, any of them could take an interest in your stock and write about it. And even if an article about your stock is positive, you can’t control what comments Seeking Alpha’s readers will write in response to it.

So if you’re the CEO or investor relations officer of a publicly traded company, it’s now harder to control the coverage of your company.

But if you’re an investor, Seeking Alpha is great news, for three reasons:

First, Seeking Alpha provides coverage of stocks that nobody else covers. Seeking Alpha covers about 2,000 small caps each quarter, about 750 of which have little or no sell-side coverage. Sell-side analysts and journalists have never done a great job at covering small cap companies, because their business model doesn’t support it. In contrast, Seeking Alpha’s investor-contributors love to find profit opportunities where there’s less coverage.

Second, Seeking Alpha articles have proven predictive value. A December 2013 study by a group of academics found that Seeking Alpha articles predict future stock returns and earnings surprises over all time frames studied: one month, three months, six months, one year and three years. Seeking Alpha articles predict stock returns even excluding the initial impact. (Our Top Ideas, for example, move their stocks by an average of 2.9 percent in the first 24 hours.) And the predictive value rises with longer time frames, so Seeking Alpha is for investors, not day traders. Overall, Seeking Alpha articles have higher predictive value than sell-side research and stories from newswires.

Third, Seeking Alpha’s community is highly intelligent. Active debate and even disagreement cause more information to come to light. The study’s findings in this area were remarkable: The Seeking Alpha comment community serves as a self-policing safety net. Comments on Seeking Alpha have strong predictive value. Contributors whose articles generate acrimonious comments underperform the market. And when comments conflict with articles, the comments have higher predictive value. (This is in contrast to stock message boards and stock tweets, which academic studies have found to have no predictive value.

Serious investors recognize the importance of Seeking Alpha, and are making it part of their investment process. Our SA PRO product (which is too expensive to disclose pricing here) gives investment professionals research access to the full library of Seeking Alpha articles and a one day early look at our Top Ideas and small cap coverage. A rapidly growing number of portfolio managers and analysts at hedge funds and mutual funds are signing up

PR and IR people will eventually embrace this reality. They’ll learn to participate in discussions of their stock while not violating RegFD. They’ll learn to build relationships with the Seeking Alpha contributors who write about their stock and the stocks in their industry, just as they built relationships in the past with sell-side analysts and business journalists. And they’ll understand that Seeking Alpha’s crowd-sourcing with strong editorial controls is the future of equity research.