By Nina Trentmann
Feb. 7, 2022 5:30 am ET

A year after the meme-stock frenzy took off, many companies continue to struggle to connect with the small investors who collectively showed how they can take share prices for a wild ride.

Executives are turning to new methods, such as tools that analyze reams of data and social-media platforms, to determine just who their small investors are and how to reach them, while also using traditional approaches like shareholder letters and meetings. But with individual investors growing in number and scattered across the country or even the world, connecting with them can be much more difficult than communicating with institutional investors.

Companies say it is important to know who these shareholders are and what they plan to do with their investments. Engaging with them can help keep them as investors and attract new ones, especially as some have ventured into stock options and other asset classes like cryptocurrencies and nonfungible tokens.

“Many retail investors have smartened up,” said Kimberly Esterkin, managing director at Addo Investor Relations and president of the National Investor Relations Institute in Los Angeles. “We are seeing a broadening of the types of investments they make.”

Last year at this time, a surge in stocks including AMC Entertainment Holdings Inc. and GameStop Corp. fueled by small investors on social media prompted finance chiefs, investor-relations professionals and other executives to pay more attention to individual shareholders.

The meme-stock frenzy helped boost trading volume on major U.S. stock exchanges to $2.45 trillion last year, from $2.20 trillion in 2020 and $1.37 trillion in 2019, according to S&P Global Market Intelligence, a data provider. Retail ownership as a percentage of total shareholdings increased to an average of 18.5% through Dec. 31, up from 14.2% a year earlier and from 13.9% in 2019, data firm IHS Markit found.

“Sometimes, you have to listen to people talk and do a little hand-holding,” said Phil McPherson, vice president for capital markets at Riot Blockchain Inc., a bitcoin-mining company. Mr. McPherson allocates several hours a week for one-on-one conversations with retail shareholders via phone, often those who reach out to him directly.

He also exchanges emails with people, explaining the company’s business model and trying to allay fears when the price of bitcoin drops and Riot’s share price falls. “I have had very frank discussions with people,” he said. “Sometimes, retail investors can be quite rude.”

Streaming company Cinedigm Corp. in recent quarters has seen wide fluctuations in its stock price, which Chief Executive Chris McGurk attributes in part to the increase of individual shareholders. The company, which used to be majority-owned by a Chinese private-equity firm, now has many smaller shareholders alongside a few funds that own in excess of 3% or 4% of Cinedigm’s some 170 million shares.

“The retail shareholders basically found us,” Mr. McGurk said, adding that the change led the company to adjust its communication strategy. Cinedigm now sends general shareholder letters and tries to interact with its investors more frequently. It works with an external investor-relations firm that monitors popular online retail trading communities like Stocktwits, and corrects false statements if needed, Mr. McGurk said.

“Things often take on a life of their own,” he said, referring to individual investors who talk about the company in public forums. The goal is to make the business understood, have analysts cover the stock and avoid volatility, he said. So far, Cinedigm, which has been profitable in recent quarters and doesn’t hold debt, has had limited success in tamping down the volatility, with its stock closing at 83 cents Friday after climbing as high as $2.95 last October.

Investor-relations professionals advise companies to issue press releases to address false statements on social-media platforms, instead of engaging in online conversations. “Retail shareholders often copy and paste our answers and post them elsewhere,” said Laura Kiernan, CEO of High Touch Investor Relations. So instead of emailing investors, Ms. Kiernan speaks to them over the phone. “It can be kind of whack-a-mole,” she said.

Another challenge for companies is finding out who their retail investors are and whether a communication tool of choice—for example, a sponsored post on a retail trading forum—has the intended result.

Because individual investors don’t have to report their holdings of company stock to the Securities and Exchange Commission, as institutional investors with over $100 million under management are required to do, some companies try to extrapolate shareholder information from so-called NOBO lists. These non-objecting beneficial owner lists provide names, addresses and share counts for shareholders who don’t object to their information being known. However, the holdings of NOBO investors are often a fraction of the total held by all retail shareholders in a stock.

Companies also track data about custodians, the organizations that buy and sell shares on behalf of their retail clients. Srax Inc., a Westlake Village, Calif.-based financial technology firm, identifies these and makes predictions about share movements, CEO Chris Miglino said.

The company’s data tools can single out individual shareholders and provide information about them. Srax also allows companies to send text messages, emails and surveys in bulk to their small shareholders. “What we are doing here is appending a lot of information that companies don’t have,” Mr. Miglino said.

Companies are experimenting with short videos and other communications posted on social media, including Facebook, Twitter and Instagram. But whether these posts cause trading volumes or share prices to go up or down often remains a mystery.

“That is one of the struggles with this, that we don’t know what’s working and what isn’t,” said Mal Karwowska, vice president corporate development and investor relations at Newcore Gold Ltd. , a mining exploration company. Newcore also puts shareholder-friendly materials on its website and allows people to book calls with the company’s management team via its website.

Investor-relations professionals advise against allocating too much time for these one-on-one formats, as they are relatively expensive, especially if the investor in question only holds a few dozen or hundred shares, as opposed to thousands or millions held by institutions. CFOs and other executives should instead be focusing on running the business, Ms. Esterkin said.

Companies with consumer-facing products often find it easier to attract and relate to small investors, while those in business-to-business sectors can struggle to make the connection, investor-relations professionals said.

Some companies hold specific events for individual investors to try to boost their retail shareholder base, often targeting high-net-worth individuals. Others advertise on online networks for retail investors, work with influencers or offer investors perks like shopping vouchers.

“Your customer becomes your shareholder, and your shareholder becomes your customer,” said Agnies Watson, co-founder of Stockperks, a company that advises companies on their retail investor engagement strategy. “The most popular one is giving people discounts every time they buy,” Ms. Watson said.

Businesses will continue to try different things in 2022, advisers say. “Companies are dabbling to see if TikTok is a viable means to do investor relations,” said Jason Paltrowitz, executive vice president at OTC Markets Group Inc., an operator of stock-trading platforms that largely cater to trading in small and midsize companies.

“We still see that desire from companies to go out there and hit that retail investor base,” Mr. Paltrowitz said.

Write to Nina Trentmann at nina.trentmann@wsj.com

Appeared in the February 8, 2022, print edition as 'Firms Try Relating To Small Investors.'