Starbucks’ Bitter Rewards – Good For Investors?

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

On February 22, Starbucks (NASDAQ:SBUX) announced the company would change its rewards program starting April 1st. However, the program leaked unofficially onto social media sometime in the beginning of February. The change is said to penalize occasional coffee-drinkers. After the announcement, disgust and outrage spilled forth from Starbucks onto social media. But this public anger may not be a bad thing for investors. As Rob Arnott notes above, “what is comfortable is rarely profitable.” Could the bitterness around Starbucks represent a buy opportunity for the courageous?

The Thomson Reuters MarketPsych Indices (TRMI) quantify emotions and topics expressed about individual equities like Starbucks. On social media, angry sentiment towards Starbucks surged after the change in the rewards program. The above chart depicts how anger towards Starbucks rose in financial social media following the announcement. However, anger sentiment indicates a turning point for the company with the intersection of the 10-day and 30-day moving averages.

The TRMI Anger index represents the frequency of all angry references to the company in financial media as a percentage of all references to the company. The Anger TRMI has shown some predictive value in price forecasting especially when it is associated with fundamental value at a company.

The TRMI is the world’s most comprehensive finance-specific sentiment data. The TRMI data is produced by quantifying references to trade-able assets across thousands of news and social media articles obtained in real-time. Emotions (optimism, confusion, urgency, etc.) and financial topics (price forecasts, earnings forecasts, etc.) in the media are quantified and converted into a time series. 130 countries, 32 currencies, 35 commodities, 52 equity indexes, and over 8,000 global equities are covered by the data. The TRMI data is used by large hedge funds and banks for the augmentation of trading strategies, research, risk management, and macroeconomic forecasting.