Relationship Between Facebook Likes and Net Income Including Moderating Effects

Introduction

Every day, according to Facebook Newsroom (2014), Facebook has 1.04 billion active readers,

on average. With around 7 billion people on the Earth, that means that on average that 1 out of every 7

people on earth access Facebook on any given day. As of December 2015, Facebook boasts

approximately 1.59 billion active users per month. For a company that was started in 2004, this is an

amount of growth that few can rival. With the explosive growth that Facebook has enjoyed and the pure

number of the site’s users, it should come as no surprise that Facebook has attracted the attention of other businesses for multiple ways.

On Facebook, businesses have the opportunity to create company pages that can be liked by

consumers in order to convey messages from the company. Social media has become a new hot trend in

marketing, a kind of holy grail where a message can be delivered directly from the company ’s page to

thousands of consumers, if not more. Social media is inexpensive, transparent, and immediate. It can

give consumers instant messages from a company directly to a mobile device or a computer. Another

draw is that instead of needing customers to seek information from a company, the customers come to

the company, eager to hear what they have to say.

That being said, not all marketers are hopping on the social media marketing bandwagon just

yet. As nice as a “Like” is on Facebook, how does that actually apply to a company’s bottom line? Sure,

reaching customers is nice, but businesses run on profits, not social media attention. There is some

skepticism as to the amount that social media likes actually help a company to generate a profit at the

end of the day. That is what the research presented in this report aims to address; what kind of

relationship is there between a company’s likes on Facebook and the company’s net income? In the

following sections the previous research and model used to study this topic will be presented, followed

by the methodology of this study, continuing on to a discussion of the findings of the study, and then finally ending with the limitations of the study and some possible research directions in the future.

Background

Since social media is a relatively new area of study, especially within the marketing realm, there

is no consensus about the relationship between Facebook likes and a business’s performance. An article

written by Jim Edwards (2013) showed various studies citing that a like can be valued anywhere

between $214.81 per like for a non-profit organization according to research conducted by Blackbaud,

NTEN, and Common Knowledge in 2012 to nothing according to a study conducted by Coca-Cola as reported by Joe McKendrick (2013).

There are some that believe that the amount of social media attention a company has is

positively related with the performance of that company. Jim Edwards (2013) reports results from a

number of different studies that attribute a dollar amount generated for a company per individual like.

However, this number varies between studies. For example, a study by enterprise social media

marketing company Syncapse in 2011 found that the average Facebook fan is worth $136.38 more to a

company than a non-fan. Other companies have found values for a like that vary from that number

wildly. A platform for companies needing a group buying/flash sale platform called ChompOn valued a

like at $ 8.00 in 2011. A different social media marketing management firm called Vitrue found in 2010

that a fan on social media is worth $3.60. Edwards’ article goes on to mention other studies that value likes at even lower amounts.

Other studies would disagree with the dollar amounts stated by the studies previously

mentioned and would claim that social media actually has no effect on a company’s performance. The

previously mentioned study by Coca-Cola reported by Joe McKendrick (2013) looked at the company’s

short term sales relative to the amount of buzz generated on social media. At the conclus ion of the

study, Coca-Cola could find no statistically significant change in short term sales as a result of social media buzz.

And there are of course other studies that lie somewhere in between absolute results of social

media either having a definite relationship on performance or social media having no impact on firm

performance. These studies found that social media could have an impact on a business’s performance if

used in the correct manner to boost performance. Hadley Malcolm reports that in 2012 for the Black

Friday shopping weekend, firms increased social-media campaigns by 40% but yet only saw an increase

by less than 1% for online traffic and sales made up by social media on that Black Friday. The point of

the article wasn’t that social media is an ineffective way to boost sales, but rather that when used effectively, social media can be used to improve sales in other mediums.

The study showed that many companies are using social media now to boost brand awareness

rather than to directly affect sales. In this way, it may be more difficult to gauge a direct link between

social media and a firm’s profit which is an issue that has historically plagued marketing. Social media

has also been used by companies to inform fans of different promotions and giveaways that the

company is offering. It appears that most companies prefer to use social media just to stay in their

customers’ minds because they figure being thought about is preferable to not.

For the research presented in this report, the aim was to compare Facebook likes to a firm’s net

income and see if there is a statistically significant relationship. Since there is so much dispute on the

value of a Facebook like, there is a possibility that the value of a like on Facebook is reliant on another

variable. To test this possibility, this model includes moderating variables designed to test whether or

not there are other variables are significant in determining the value of a like on Facebook to a firm. The

moderating variables tested in this model is business type (whether the firm is B2B or B2C), business

age, and business size.

Figure 1

Facebook Likes Income

H1: Stronger Relationship in B2C

H2: Stronger Relationship in Younger Companies

H3: Stronger Relationship in Smaller Companies

It is expected that the research would show that the amount of Facebook likes that a business

has would have a more significant relationship with the firm’s performance if the firm sells directly to

consumers rather than businesses since generally those who would like a company on Facebook would

be a customer. The relationship between Facebook likes and a firm’s revenue is also expected to be

stronger in a younger firm, because these firms would be less established and would likely need to rely

more on buzz and attracting new customers through inexpensive means. And also, smaller businesses

would be expected to have a stronger relationship between Facebook likes and revenue because a

larger business is likely well-established with a well-established customer base and doesn’t need to

attract new customers using social media.

Method

For this research, a multiple regression was run both with and without the moderating variables

to see the effect of Facebook likes on firm performance, measured by firm income. The sample came

from 188 publicly-traded companies in the United States. 10K reports were accessed via Mergent online,

and Facebook likes were found by looking up the company on Facebook. A dummy variable was used for

business model, in which B2B companies are represented by a 0 and B2C companies were represented by a 1.

In the first model, the relationship was measured between Facebook likes, assets, and revenue

and a firm’s net income via multiple regression. Facebook likes, assets, and revenue were also measured

relative to net income in the second, third, and fourth models, but these models also included a

moderating variable. The second model included Facebook likes multiplied by the dummy variable for

B2B or B2C to determine whether the type of business makes a difference in the relationship between

Facebook likes and net income. The third model included a variable multiplying firm age by Facebook

likes, and the fourth model included a variable which multiplied Facebook likes by numbe r of employees to see the effect of firm size on the model.

The results of this study were not exactly as expected. It was expected that Facebook likes

would be related to a firm’s income when as a result of other variables, which was mostly supported by

this study. The results showed no statistically significant relationship simply between Facebook likes and

firm performance. It was hypothesized in H1 that a firm that sells directly to customers rather than to

other businesses would have a stronger relationship between Facebook likes and firm performance. This

research did not support this hypothesis, and actually showed a statistically stronger relationship

between likes and firm performance if the firm sells to businesses rather than consumers. It was then

hypothesized in H2 that younger firms would have a stronger relationship between Facebook likes and

performance. This hypothesized wasn’t supported, as the research showed no statistically significant

difference in performance based on Facebook likes combined with firm age. H3 hypothesized that the

relationship between Facebook likes and performance would be stronger in smaller companies. This

hypothesis was supported in the research, which showed a significant relationship between Facebook

likes and firm net income in smaller companies.

The results of this research suggest that Facebook likes can be an indication of firm success,

depending on the size and type of the firm. It was found that Facebook likes are significant for a younger

firm to measure success, as well as for a B2B firm rather than a firm that interacts directly with

consumers.

Discussion

The results of this research were somewhat surprising, based on the hypothesis going in. It was

assumed that moderating variables would have an effect on the relationship between Facebook li kes

and firm performance, and that idea was supported by this research. However, it was also assumed that

a firm that sells directly to consumers would have a stronger relationship between Facebook likes and

revenue. This idea was not only not supported, but this research showed a significant relationship that

was exactly the opposite. It’s difficult to determine why this was, but it could be simply attributable to an error in sampling.

Going in to this research, there was also an expectation that younger firms would show a

stronger relationship between firm performance and Facebook likes. This also was not supported by the

research which was surprising because it was hypothesized that a younger company could benefit from

inexpensive and direct marketing to a mass of consumers. This same mindset applied to the assumption

that smaller firms would show a stronger relationship between Facebook likes and performance. This

was supported by the research, suggesting that for a small firm, Facebook likes can have a greater impact on firm performance than they would on a larger firm.

Facebook Likes Facebook Likes x B2C

Facebook Likes x Age

Facebook Likes x Number of Employees

Coefficients 8.501531232 -8935.187812

0.829529917

-0.000259472

Standard Error 8.306694869 1538.946789

0.428365331

8.19313E-05

T-Statistic 1.023455341 -5.806040778

1.936501059

-3.166947874

P-Value 0.30744361

2.81759E-08

0.054363717

0.001808186

Adjusted R-Square 0.623521816

0.679367619

0.627088008

0.677965222

This research is of importance to marketers because it appears social media is here to say and

even though many current marketers see the potential of what social media can mean for marketing, it

is still unclear how to profit off of social media. This research shows that Facebook likes aren’t simply

converted to profit automatically. Depending on a number of variables Facebook likes could be

beneficial for the firm or mean nothing. This implies that social media can be used in marketing, but that

with the rapid expansion of social media that marketers need to hurry to keep up and find new ways to maximize the effect of social media marketing.

Limitations and Future Research Directions

There is a possibility that sampling had an effect on the results of this research. One possible

source of sampling bias is that the only firms that could be accessed for this study are firms that are

publicly traded. Privately owned firms may have yielded different results. There were also a few larger

companies or companies with very large social media presences that were outliers and could have had an impact on the data.

Going forward, there is a lot of potential for future research. Of course, other social media

platforms such as Twitter or LinkedIn could provide interesting results to see if similar research

conducted on those other sites would yield similar results. Also, I’d like to know how this research compares to privately owned companies, if that financial information somehow became made available.

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