The second of two articles on best practice looks at IR teams going beyond the call of duty
Last month, this column drew from two recent thought-provoking books to highlight some of the characteristics of IR best practices based on actual research rather than what may often be opinion or anecdotes.
Winning investors over by Baruch Lev and Investing between the lines by LJ Rittenhouse both cover a lot of ground, but two aspects in particular stand out to me. Both authors make the case for providing context along with content, and Lev goes further, advising that companies benefit by going beyond GAAP data on a consistent basis when the presentation is relevant to understanding a company’s value drivers.
But saying is one thing and doing is another. While most companies attempt to provide a context for their numbers and share what they believe to be relevant non-financial data, I found two examples worth sharing that clearly illustrate those best practices and show how investors benefit.
The first is Netflix’s 4,000-word essay entitled ‘Long-term view’ that tops the IR page on the company’s website. The essay begins with a succinct summary of key drivers in the fast-changing landscape of television and movie distribution and viewership, then goes on to describe how Netflix operates in that world today and how it will do in the future.
‘One interesting thing about communicating with investors about Netflix is that they have to believe in the model and vision,’ says Jonathan Friedland, chief communications officer for the $3.9 bn California-based company. ‘We’re painting a picture of how we see the industry and consumer behavior evolving.’
The document evolved out of in-depth quarterly letters that went beyond the current results to talk about industry developments and the competitive environment, Friedland explains. Over time, the broader discussion came to dominate the letters, and new investors would have to go back and read the past several years’ worth of quarterly commentary to get the full picture of the company’s vision.
At the start of this year, Netflix created what Friedland describes as a ‘foundational document’ consolidating and updating those commentaries while refocusing the quarterly letter on recent performance.
The plain-English document describes the dizzying options available for both distributing and viewing content as well as the drivers and competitive interests behind them, while avoiding eye-numbing jargon and techno-babble. Investors ‘appreciate the depth and thoughtfulness’ of the piece, Friedland says.
The second example is FedEx, the package delivery and business services company. Because of its daily touch point with business around the globe, the $44 bn company is viewed by many analysts as a bellwether for the economy.
Beyond detailed breakout of segment financial statements, the company issues its own US and global GDP and industrial production estimates, factors that are key drivers to its business results. In addition, the company produces a voluminous annual Stat Book that spans 10 years of quarterly financial data and more.
The Stat Book goes into details such as annual tally of the number of shipments, average weight, revenue per hundredweight and daily shipment growth rates across the company’s major categories of delivery service.
The data is more comprehensive and extensive than that provided by major competitors such as UPS and DHL. FedEx also produces a trimmed-down version that incorporates just the past two years’ worth of data, notes IRO Mickey Foster, so investors have a less unwieldy alternative at hand.
Foster says analysts find his Stat Book ‘very useful’. (It also helps him, he adds.) ‘If they want to know how we did in the last recession, I tell them to go to the historical Stat Book,’ he says.
Analysts and investors find the data useful in other ways as well. In a recent JPMorgan write-up on the latest freight data report out of Shanghai Pudong International Airport, analysts had correlated Shanghai cargo traffic to FedEx’s historic international shipment data as one possible source of insight into the slowdown in China. ‘They can do any analysis they want,’ Foster concludes.
