The Ferris Bueller problem of IR occurs when your website fails to convey that your company is interested in engaging with investors.
Most in the audience are familiar with the movie Ferris Bueller’s Day Off. For a moment, envision the scene where Ben Stein takes attendance, and continuously says, “Bueller, Bueller, Bueller.”We briefly discussed this in our last note and video. Many times, the Ferris Bueller problem represents a company with a great story to tell, but the IR website and/or IR materials do not illustrate the greatness of the company.
Common Characteristics of the Ferris Bueller Investor Relations Problem
At the highest level, the Ferris Bueller problem means the company fails to operate a website or provide the requisite investor materials associated with the company’s market cap, trading volume, competitive positioning, or investor perception. A part of the Ferris Bueller problem revolves around failing to utilize the most important pieces of real estate for an IRO to tell the company story constructively.
Common Characteristics
Old Web Design: The Ferris Bueller IR problem starts with antiquated web design. As we described in our last article, does the website only take up the left half of the computer screen. Do the links, menus, and materials all flow naturally from the website, or do they look
Lack of Summary Landing Page: The best IR websites are able to provide a basic summary of all things important on the IR landing page. Those with the Ferris Bueller problem fail to provide a clear investment thesis, key statistics to call investor to action, links to most recent earnings results, and no link to the current investor deck.
No Investor Deck: The company investor presentation represents the primary tool to evangelize the company investment thesis, position the company within it industry, and answer key investment debates. Companies operating without an investor deck clearly exist, but also make a strong statement that we are not really interested in cultivating new investor relationships. Also note that the company analyst day deck does not represent an optimal or useful investor deck.
Poor Earnings Disclosure: The quality of earnings disclosure sends a strong signal to the Street regarding how well you have a handle on your business. The less information you provide, the more skeptical the investor community will be of your results. If your IR program represents a business that needs to provide additional metrics to help analysts build the revenue function of the model, a good supplement is likely needed. Without necessary disclosure, investors will view your company as unanalyzable.
No Defined Competitor Set: Many companies and IROs overlook the importance and value of providing a detailed competitor set. If the company fails to identify competitors it signals a lack of understanding of its own industry. At worst, the lack of a defined competitor set opens the company up for a short attack.
There are two clear benefits from a well-defined competitor set:
(1) investors view you as a smart and sophisticated management team, and
(2) valuation might improve.
For example, if you are a complex business operating in several markets, you might benefit from the investor community using a Sum-of-the-Parts (SOTP) valuation analysis. If you do not provide the right competitive set, the investor community will have trouble doing an SOTP, and may not use the right companies, which might result in suboptimal valuation.
Lack of Defined TAM: A company and IRO always need to provide the parameters for the opportunity associated with investing in the company. Investors need to understand what they are playing for and the TAM allows them to put guardrails on the growth opportunity. The more refined and thoughtful the TAM discussion, the greater credibility you have and the more investible your company becomes.
Lack of Defined Financial Metrics: Every public company has a golden metric, meaning if you fumble that metric or blowout that metric the stock will react significantly. The golden metric can likely be identified by reading sell-side previews and first looks, and then identifying which data points are most important. For data center REITs, the golden metric revolved around leasing in a given quarter.
Management teams can create golden metrics by defining them during an analyst day. When a CFO anchors the investor community to specific metrics several years our, he or she has created a golden metric.
For example, when I covered Medidata Solutions (MDSO), the company would anchor investors to a long-term revenue projection of 20% to 25% top line growth. Once anchored, the bogey became a golden metric that had significant impact on the upside/downside of the underlying stock.
Another example would be Laureate Education. During its investor day in January 2018, the company anchored investors to two 2020 goals: (1) adjusted EBITDA margin expansion, and (2) unlevered FCF margin expansion. These are now golden metrics that investors will likely appreciate additional color on progress on each subsequent earnings call.
Once a golden metric is created, the company then must report on that metric going forward. Additionally, once you have a golden metric, the company cannot afford to perform poorly on that metric!
Chipotle Mexican Grille and the Ferris Bueller Problem
An example of the Ferris Bueller IR problem involves Chipotle Mexican Grille (CMG). The company represents one of the most attractive franchises in the restaurant industry, health issues notwithstanding. CMG boasts a roughly $12.0 billion market cap, which is significantly higher than its competitors. Furthermore, looking at CMG on a Unit Growth and SSS growth basis, the company outperforms the majority of the restaurant space. The problem is that CMGs IR website and investor materials fall short of what a company of CMG’s stature should and needs to provide.
CMG benefits from having a great website foundation, as the skeleton of the website is quite simple and accomplishes getting the investor to pertinent information in very few clicks. However, the issue is that the website and full presence lacks the materials necessary to convey to a new investor CMGs position within the industry, and its associated investment story. In the case of CMG, the company operates a great foundation, but does not provide enough information to optimize the utility of its web presence. Given the company’s past health issues, going above and beyond and providing the necessary materials becomes paramount.
We believe CMG represents a useful example as the company is actively searching for a Director of Investor Relations. Furthermore, our lack of restaurant industry knowledge allows us to better illustrate the problems associated with not providing the necessary investor materials befitting the company’s station in the market. Our underlying belief that CMG represents a hybrid FANG stock, given the demographic trends behind its growth, also makes CMG a great case study.
The CMG IR website consists of a very basic landing page that provides info on stock price, news flow, and a bulky corporate profile. The navigation is great and efficient as you can get to where you go in minimal clicks. The problem is that the website fails to convey that CMG represents many of the similar qualities of FAANG stocks even though it is a restaurant company. CMG benefits from strong secular growth trends and cult following among Millennials, but the IR website fails to convey these important facts. Right now, CMGs IR website benefits from great navigation, but fails to provide several important materials needed to drive frictionless investor engagement.
Here are the key problems:
Lack of an investor thesis / call to action
Lack of key financial / company metrics
A bulky corporate profile
Lack of short cuts to key investor materials e.g., 10-K, Investor Deck, et al.
No investor deck and no MVP slide
No earnings supplement or earnings slide deck. How to Fix CMGs Ferris Bueller IR Problem
In my view, CMG benefits from an IR website with a strong backbone, as the navigation is great and efficient. The problem in my view revolves around a lack of content curation, a common problem among companies. The company needs to start by making the IR landing / summary page more robust. Here are a few suggestions:
Investment Thesis: Currently, CMG uses a company profile, the problem is the company fails to provide an investment thesis or true call to action to own the stock. Like many companies, the view seems to be that we are really good at what we do so you should know that. Unfortunately, that does not work in the field of investor relations. The rule of thumb should be, “If we are not saying it, then investors do not believe, understand, or know about it”
Important Anchor Metrics: Add key high-level metrics such as restaurant footprint, the current quarter unit growth, the current quarter same-store-sales growth, and maybe a comment on how many restaurants it intends to open this year. For example: CMG operates in X markets, across X states, and owns and operates X restaurants. CMG intends to add X to X restaurants in a given year.
Simplify the Corporate Profile: CMGs corporate profile is a 10 paragraph essay that really does nothing to excite me as an investor. The corporate profile needs to call out the key data points about your business that separates it from the competition.
Add Key Shortcuts: The home page should include short cuts to the most recent earnings release / supplement, most recent investor deck, and most recent annual filing.
Investor Deck: CMG currently does not provide an investor deck. Not having investor deck signals two things: (1) you are not open for business, and (2) you do not want new investors to engage your story. The investor deck should allow an investor to initiate coverage of your company in a weekend. The deck also keeps investors from asking management about simple statistical questions rather than value-add deeper questions.
MVP Slide: In my view, CMG would benefit immensely from a competitive benchmarking slide similar to what we used at DFT. Given that CMG continues to suffer from an image problem, they need to work extra hard to tell their story. Any chance to call out the unique aspects of the CMG business should be utilized. A competitive benchmark slide allows CMG to continuously illustrate the keys to their business: (1) fully owned and operated footprint, (2) high unit growth, and (3) high same store sales growth.
Earnings Release: CMG’s current earnings release seems to be very basic. In my view, the company would benefit from creating a more robust earnings supplement and earnings deck to call out key performance of the company. Doing these extra disclosure materials helps provide some downside protection in crisis situations.
CMG investor web presence and materials reflects the status quo of IR, which revolves around a passive approach. Our philosophy revolves around IR taking an active approach with a focus on business ownership. The IRO and IR program must convey the investor story in a way that illustrates an understanding or appreciation for ownership of the underlying business.
Many IROs and executives fail to realize that keeping investors engaged with the company investment story takes hard work. Regardless of your positioning, you need to provide the necessary investor materials and investor website to show you are open for investor interaction. The importance of using all of your IR real estate optimally is critically important for Micro, Small, and Mid cap companies, yet slightly less important for Large and Mega caps. Regardless of market cap, providing the right website experience and investor materials will at a minimum smooth out share price volatility, and in a best-case scenario give you more investors than you currently need! Remember, having too many investors can make the difference between keeping your job, or being ousted by an activist campaign.
