Posts Tagged ‘Investor relations’

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Facebook IPO: Should we “Like” it?

February 5, 2012

Yes, I know, investor relations people should be thrilled to see life returning to the IPO market in 2012 – and here comes Facebook, the biggest Internet IPO of all, to stir up interest in public markets. But I’m wavering on whether to click “Like” or “Not-so-much.”

I can’t help feeling that all the hoopla around the social media giant’s pending public-company status may be a sign of a frothy top in the stock market. I hope not – and I do wish Facebook success in its IPO. It’s a wonderful growth story.

The stock market has had a good run recently, despite some nervous days. The S&P 500 is up 110% since about this time in 2009. The Nasdaq Composite has reached a level it hasn’t seen since 2000, not the top of the dot-com bubble but the time when prices were still deflating. And the market may keep rising for now.

Two things bother me a bit about the Facebook IPO:

Valuation. The prices being bantered about seem a little unhinged from reality. Andrew Bary’s commentary this weekend in Barron’s is interesting:

The best businesses can be poor investments, if you pay the wrong price. That’s worth considering as Facebook readies the most closely watched initial public offering in years—a deal that could value the seven-year-old company at $100 billion. …

Assume Facebook comes public at around $40, a slight premium to its private-market price. That would value the company at $92 billion, based on 2.3 billion shares outstanding. At $40, Facebook would trade for 93 times trailing earnings and 25 times 2011 revenue of $3.7 billion. … If Facebook’s profit doubles in 2012, topping the 65% gain in 2011, it would earn 86 cents and trade for nearly 50 times earnings.

The FB offering brings back “eyeballs” as a major performance metric – in this case, Facebook’s 845 million users and the assumption that there simply must be ways to make lots and lots of money off of all those eyeballs.

Exuberance. That gee-whiz enthusiasm, built on a rising market and a technology so popular grandmas are using it to follow the kids’ activities online, is just a little scary. The New York Times‘ Jeff Sommer commented this weekend:

THE financial system may not be in great shape, but why dwell on it? Stocks are rising and I.P.O. euphoria is in the air. … Greed in the market is rising, and for some seasoned investors, there is an uneasy sense they’ve read this script before.

“It’s like we’re finally emerging from nuclear winter for I.P.O.’s but we’ve forgotten our history,” said Harold Bradley, chief investment officer for the Kauffman Foundation and a former executive with the American Century mutual funds. “If we don’t start paying attention, we’ll be making the same stupid mistakes all over again.”

If the stock market teaches anything, it is to keep historical perspective, watch the broader context of the economy and markets, and not bet too much on an upward-sloping line you can draw through the past couple of years’ performance.

Good news for investors is that Facebook’s S-1 filing reports five years of rapidly rising revenues and three years of real earnings, also fast-growing. So this isn’t an “idea on a cocktail napkin” IPO from 1999. But neither is it J&J or Procter & Gamble.

If I were the IRO for Facebook, I would be emphasizing three messages to investors:

  1. Revenue and earnings. We have ‘em, and here’s why they are sustainable. Investors should understand the varied revenue streams and their profitability. The IR story is about financial returns, not the social mission.
  2. Value for customers. Not the 845 million – users are essential but aren’t the ones who pay Facebook. The business is selling access to FB’s users to advertisers, application developers and the like. How much value does Facebook deliver to these customers – now and over the next few years?
  3. Durability. Investors must be concerned about what happens if Facebook’s “cool factor” wears off and users start taking photos and events and friends to newer, cooler platforms. Facebook needs to communicate its strategies for sustaining the dominant position in social media.

A friend tells me his worst investment decision ever was Apple: He bought AAPL at $15 a share and sold when it hit $35 – and he’s been kicking himself all the way up to $450. I must admit my investing instincts run in that same vein. Apple is a great example of “cool” staying cool – for consumers and shareholders. So Facebook may soar in its IPO – and continue to fly in the years to come.

What are your thoughts on the Facebook IPO?

© 2012 Johnson Strategic Communications Inc.

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In 2012, embrace the uncertainty?

January 2, 2012

Happy new year. A chatty column in the Financial Times, “Three cheers for new year trepidation,” touches on a central issue for investor relations in 2012: How should companies communicate with shareholders about what we can’t foresee?

Citing the obvious risks in trying to predict what will happen in a fragile global economy, FT management editor Andrew Hill notes that many companies are simply waiting, hoarding cash, holding off from embracing any particular scenario. But, he adds, mere expressions of caution don’t do much for their investors:

As executives’ reluctance to commit themselves grows, so the appetite of outsiders to know about their future plans increases. Investors are now far more interested in the “outlook” section of the company report than in the backward-looking summary of the historic results. But in their public statements, most chief executives hide behind a “lack of visibility”, adding to the general nervousness.

Hill says CEOs should “embrace uncertainty” in 2012 while at the same time communicating what they can see in the current situation:

Business leaders need to count on their ability to be the one-eyed man in the land of the blind – a proverb recently recast by Richard Rumelt in his book Good Strategy/Bad Strategy: “If you can peer into the fog of change and see 10 per cent more clearly than others see, then you may gain an edge.”

So we should acknowledge to investors our uncertainty but then discuss what we do know: data on changes in our customers’ behavior, qualitative trends in the business, our own strategies for surviving and thriving in what could be difficult times. This may be the biggest messaging challenge for investor relations in 2012.
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So how are you communicating in this environment of uncertainty?
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© 2012 Johnson Strategic Communications Inc.

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Posted in Messages & writing | 2 Comments »

Shareholders & ‘the ADD society’

October 14, 2011

Andrew Ross Sorkin, the New York Times M&A columnist, CNBC “Squawk Box” co-host and author of Too Big to Fail, says we’re kidding ourselves when we say we want corporate leaders to think long-term. The problem, he says, is all of us.

“We are the ultimate ADD society,” Sorkin said today in a speech to the Association for Corporate Growth Kansas City chapter. Patience is nowhere to be found, and that goes for the stock market and demands it places on managements, he said:

We keep saying we want more shareholder democracy because we want executives to think long-term. The problem is not that the people in power are short-termists, it’s that we are short-term thinkers.

As Exhibit A, Sorkin cited the statistic that the average shareholder holds onto a stock for only 2.8 months. Less than one quarter. Of course, high-frequency automated trading turns stocks over in milliseconds, and multiple times every day. But even individual investors can be fast-moving and fickle:

I would love to find a way to get our country back to being an investing society, not a trading society.

Sorkin acknowledged there’s no sign of that happening anytime soon. (Coverage of the rest of what Sorkin had to say is here or here.)

The investor relations person in search of a patient investor, in this environment, is something like a mythical but tragic hero. Solutions, anyone?

© 2011 Johnson Strategic Communications Inc.

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Posted in Capital markets & IR | 1 Comment »

Things could be worse

September 27, 2011

In the “things could be worse” category: Unless you work for Hewlett-Packard, Yahoo! or News Corporation, your company isn’t discussed in “The Worst Board in America,” a video by Thomson Reuters tech correspondent Peter Lauria.

“There’s basically a race to the bottom. They’re all dysfunctional in their own way,” Lauria says of the trio of companies that have been generating negative headlines. He reviews the CEO firings, shifting strategies and downward-moving stock graphs and then names “the worst board” – well, I won’t spoil it. You can watch the video.

No doubt H-P, Yahoo! and News Corp. might respond, “Who is Peter Lauria? What qualifies him to judge the merit of our boards of directors?” And they’d be right. He’s just a journalist who covers media, technology and telecom for Reuters.

On the other hand, he’s not alone in his assessment.

The positive side of this: If you’re doing investor relations for a company that does have a long-term, consistent strategy and high-quality board and management, you’ve got some very attractive selling points for long-term investors.

Focus your IR messages on the track record of your strategy and how it’s paying off, the quality and experience of management, and the expertise of your board. The long-term investors will be with you.

© 2011 Johnson Strategic Communications Inc.

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Five stages of grief

September 15, 2011

I hate to go all morose and contrarian on another “up” day in the markets, but …

Jerome Booth, research director of London-based emerging markets specialist Ashmore Investment Management, makes an interesting point in a Sept. 14 Financial Times column. He posits that global markets are moving, slogging really, through the classic five stages of grief. When we lose a loved one, we follow a pattern described by psychiatrist Elisabeth Kübler-Ross as the five-step model of grief: denial … anger … bargaining … depression … and, finally, acceptance.

Booth applies this to global markets.

As investor relations people making our rounds with investors, we might probe what stage the patient is in, on any particular day, before launching into our story.

What has died, Booth writes, is our complacence in using debt to meet all needs:

Western Europe and the US now face years of painful deleveraging. The loss they feel is the death of the levered model enabling them to live beyond their means, plus a loss of prestige as their economic models have failed.

As an EM guy, Booth says we’ll have to adjust to kowtowing a bit to emerging markets. In the West right now, he writes, we’re in denial:

When faced with a truly awful prospect we explore and then cling to any theory or hope that reality may be different. Even where political leaders understand the immensity of their loss, the denial of their electorates constrains their action.

There are examples of anger – riots in Greece and other nations over economics. And of bargaining to delay unpleasant consequences or sweep them under the rug. Still ahead, perhaps, is the loss of hope a patient feels as depression. And we haven’t seen many signs yet that our leaders – or we the people – have moved on to acceptance of realities so we can deal with what needs to be done.

All this is very global and “macro,” but let’s think about how it applies to IR messages about the businesses we speak for:

  • Above all, are we helping our management teams to avoid living in denial?
  • In offering forward-looking views to investors, do we spell out assumptions on the economic factors that drive our particular businesses?
  • Do we explain how we plan to perform if the economy stays weak for a long time, vs. signing onto consensus hopes for recovery in H2, or H1 2012, or  … ?
  • When our stock is beaten-down, do we listen to see if the investor on the line is in the anger stage or depression – or maybe in a place to hear reality and look forward to ways out of the doldrums?
  • Do we deal with debt and balance sheet metrics, including strategies for managing the balance sheet, in a way that helps investors understand?

Just a handful of thought-starters. I’m not arguing where investors’ sentiment should be – just saying IR people need to pay attention to where it is.

Mainly, I appreciate Booth’s wry insight into the psychology of today’s happy-nervous-elated-terrified-optimistic-not so sure-ever mercurial stock market. I’d love to hear your reactions.

© 2011 Johnson Strategic Communications Inc.

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Investors, this is your day!

September 13, 2011

If you’re not already doing an “analyst day” every year or two, maybe you should be. That’s my takeaway from “NIRI Survey Reveals Current Analyst/Investor Day Practices” - a benchmarking study released Monday by NIRI.

Key finding: 71% of the 431 investor relations professionals responding to NIRI’s survey hold a periodic analyst/investor day. It’s a chance to show off management and tell the company’s story in-depth. After all, you’re locking investors in a room for a half day or full day, so this is “quality time.”

Of course, the larger a company is, the more likely it is to host a regular analyst day. But even among small caps ($250 million-$2 billion), 63% offer a “day.”

Some 70% hold their analyst days in New York or another major investment center, while 40% invite investors in to meetings at a corporate facility, NIRI found.

A few thoughts based on analyst days I’ve been involved with:

  • The CEO and CFO play host and give the strategic overview, but having a half day or more is a great opportunity to demonstrate management’s bench strength by bringing division heads, R&D leaders or operating executives forward for investors to meet them in a fairly controlled environment.
  • It’s also a chance to put on display the chemistry of the management team – showing investors how the top execs relate to each other. Not a bad idea to do this some months after a big merger, to present a unified, compatible team.
  • How often you hold an analyst day is up to you. How fast is the story evolving? If there’s progress every year, annual is great. If this year looks a lot like last, maybe not. (NIRI found 49% of companies who hold “days” do so annually, 35% less often, 12% on an ad hoc basis, 3% more than once a year.)
  • The name “analyst day” doesn’t quite capture the fact that institutional investors are the primary audience. Sure, the sell side attends – but real shareholders and potential investors are the main point of the effort.
  • I personally like the on-site analyst day, giving investors a feeling of seeing the business and kicking the tires, even though they’re carefully shepherded on any tours of the plant or laboratories. But a lot depends on your location. Call up a few analysts or investors and get their input before scheduling your day.
  • Schedule enough breaks to let investors check email, used the phone and visit the restroom. It’s hard to limit your speakers – but, hey, give people a break.

What’s your experience with analyst days? Love ‘em? Hate ‘em? Any tips?

© 2011 Johnson Strategic Communications Inc.

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Steady as she goes, IROs

August 16, 2011

A quote of the day for investor relations professionals, from National Investor Relations Institute President and CEO Jeff Morgan in his “IR Weekly” email and blog post under the heading “Market Mayhem”:

Market volatility reached new extremes last week as we experienced global market moves of positive to negative 5% from one day to the next. Most believe it is very unlikely these market moves were driven by fundamental analysis of companies, but instead by panic, margin calls and computerized trading. For IROs, these are the most challenging market conditions as they lack logic and rational explanation. Time and other actions outside our influence and control will bring markets back into check, as we continue to tell our story to investors.

I agree, although market mayhem may be more rational than we can see at the moment. However much we dislike “panic,” if the market performs horribly going forward, fear will seem logical in retrospect. Time will tell whether investors should “Hang on and weather the storm” or “Batten down the hatches and go to cash.”

Certainly for IR professionals, whose individual companies may be doing fine even as the market goes crazy, it’s sound advice to hold the wheel … steady as she goes.

© 2011 Johnson Strategic Communications Inc.

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Jamie Dimon: Cheer up, America!

August 10, 2011

While the markets are going crazy, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., is out visiting bank customers and employees on a bus tour in California – and giving an interview today with CNBC. His core message: Cheer up, America! That’s not bad advice for investor relations folks, either.

Dimon doesn’t mince words about shortcomings in European finances, US policy making, even the state of banking. But he comes back to a bedrock optimism:

Confidence is like a secret sauce. … Here’s what I would say to the American public in total. When you go to sleep at night think about the following before you get depressed and you see the market down 500 points: This nation is still the greatest nation on the planet. It was the first democracy on the planet. We have the best military on the planet, and God bless our veterans all around the world, those who have served and those who are serving today. We have the best universities on the planet and the best businesses. Those things that I just said - best military, best rule of law, most innovation, the hardest working ethic of all – those things are going to be here for decades. They’re not going away. The strength in the system is going to blow your socks off when it gets out of this malaise we’re in. Those things are there.

It’s good to see an executive smiling. Regardless of what you think of Dimon or big banks, he’s expressing the spirit that drives American business. It’s worth watching both pieces on CNBC. Just to feel better on another day of, as they say, volatility.

By the way, in 2008 I shared 10 ideas on doing IR in a bear market. These apply today, too, for investor relations practitioners surveying the Wall Street carnage. I’d welcome your comments or ideas on helping our companies rise above the malaise.

© 2011 Johnson Strategic Communications Inc.

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Posted in Bear market IR, Financial crisis & recession | Leave a Comment »

Investor relations for the USA?

August 8, 2011

The President has pulled into the lead, ahead of a three-way tie among the Treasury secretary, “Other” (write-ins Ben Bernanke, Paul Volcker, Bill Clinton and “Someone who’s fluent in Chinese“) and “Oh, never mind!” What do you think?

Not a political comment … just a little comic relief amid wild days in the markets.

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Adding wiggle room to guidance

August 5, 2011

Are we in recession again? Weak recovery? Heading for Financial Crisis 2.0? No wonder more than a few CFOs and IROs have been wringing their hands over what guidance to provide investors as part of the second-quarter reporting season.

If you’re looking for an example of softening guidance by widening the range, Procter & Gamble provided just that today with its fiscal fourth-quarter results. For the new fiscal year, P&G forecast core EPS “in a range of $4.17 to $4.33, up six to 10 percent.” Fair enough. That’s not exactly fuzzy, but the range is a bit broader than P&G gave last year at this time (a 10-cent span in EPS, vs. 16 cents this year).

Market watchers commented on the change, as in The Wall Street Journal story headlined “P&G Outlook Reflects Jitters”:

P&G adopted a wider-than-normal range for its fiscal 2012 outlook, which encircled Wall Street estimates, calling for per-share earnings growth of 6% to 10%. The low-end is slightly below the consumer-product giant’s long-term goals for annual growth of high-single digits to low double-digit growth, largely on questions percolating through the global economy.

On P&G’s conference call, Chief Financial Officer Jon Moeller blamed a cloudy macro environment:

Our guidance ranges will be a little bit wider than normal this year, reflecting a broad policy uncertainty, ongoing high levels of volatility and market growth rates, input costs and foreign exchange, as well as uncertainty both upside and downside related to pricing across the portfolio.

So there you have it – big, sensible P&G is a pretty safe role model. Go ahead and add wiggle room to your guidance. We may all need it.

© 2011 Johnson Strategic Communications Inc.

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