The Ferris Bueller Problem of IR
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.”
https://www.youtube.com/watch?v=KS6f1MKpLGM
The Ferris Bueller problem of IR occurs when your website fails to convey that your company is interested in engaging with investors. 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 sell-side 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 and more investible is your company.
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.
Successful IR requires one thing: accessibility. Is the IRO available when an investor has questions. If you suffer from the Ferris Bueller problem the fix is easy, hire a strong IRO.
