Technology company pushes disclosure boundaries, finds Tim Human
It shouldn’t have come as a surprise to anyone when, in April, Google said it would make financial announcements available exclusively on its IR website. For one thing, Google has a track record when it comes to tweaking the earnings process: IR magazine’s cover story in March told how the company used its Moderator application to field questions in Q3, then streamed its conference call over YouTube in Q4. More changes seemed inevitable for Q1 on April 15.
Furthermore, it’s now almost two years since the SEC updated its guidance that said companies can disclose over the website and satisfy Regulation FD, as long as certain conditions are met. It was about time someone tested this guidance to the limit – and the obvious candidate to do so was Google.
Until April, several companies had experimented by issuing advisory notes instead of full press releases, pointing investors toward the IR site where they could find the full earnings release, which is sometimes referred to as a notice and access model. In fact, BGC Partners, the inter-dealer broker, first tried this tactic back in February 2009. Other more recent adopters of the advisory note route include Expedia and Marathon Oil Corporation.
But none of them said it would start disclosing exclusively through its website. This is a gray area as companies must meet certain qualitative factors to satisfy Reg FD, such as being widely followed and having developed a pattern of web-based disclosure.
The big question now is whether anyone else will follow suit. Other issuers are certainly considering it. Michael Littenberg, a partner at New York law firm Schulte Roth & Zabel who specializes in representing public companies, says he received a number of calls from clients following the Google move to see whether they’d also be able to disclose over their website. ‘It’s an interesting area,’ he says. ‘We’re getting questions from clients on this because market practice is definitely evolving in this area.’
Expected or not, Google’s move was still big news in the IR world, and beyond. Along with the usual suspects in the IR blogosphere, news providers like Reuters and UK newspaper the Daily Telegraph also picked up on the story, which was big for two reasons. First, it involved Google, and anything the search giant does is closely scrutinized.
The second reason, however, is far more important: Google’s announcement went much further than other issuers in the area of web disclosure. It stated in its April 15 release that ‘Google intends to make future announcements regarding its financial performance exclusively through its investor relations website’. This means the company may not even bother to put out a release come its second quarter results in July. That would test the SEC’s policy of websites being ‘a recognized channel of distribution’ to the limit.
In reality, there is little chance Google could be pulled up for a Reg FD violation. The qualitative factors set out in the SEC’s guidance make clear that a company like Google is well placed to meet its disclosure requirements through the website.
As Dominic Jones of IR Web Report points out in a blog post, Google has been directing people to earnings information on its website ‘for several quarters’. This satisfies the SEC’s requirement that companies make investors aware information will appear on the website through having a practice or pattern of doing so. The advisory release Google put out in April further confirms this practice.
Other key factors to consider include the size and following of the firm doing website-based disclosure, and whether it uses tools like RSS feeds to disseminate the information widely. Google ticks all these boxes with ease.
‘A company like Google is obviously at the cutting edge of technology, gets a lot of traffic to its IR website and employs push technology (a style of internet-based communication) to inform investors when it puts things on the website, so it is a good candidate for using the SEC’s guidance in this area,’ notes Littenberg.
The middle way
Whether or not companies are able to follow Google’s lead depends on how they interpret the SEC’s guidance on website disclosure. The other early adopters are more cautious than Google, choosing not to use the website exclusively.
Take Marathon Oil, for example. The firm has plenty of traffic to its website but, as it is not widely followed in the media (in the way Google is), the company’s vice president of IR and public affairs, Howard Thill, feels for now it is best to continue putting out short releases directing people to the IR site. ‘It’s good practice for a company like us, which is global in reach but doesn’t have the daily news flow Google has,’ Thill explains.
Others have taken the opportunity to reiterate the case for distribution of financial releases over the wires. Not surprisingly, the newswires have been among that group, but it also includes prominent issuers like Microsoft. During a webinar hosted by PR Newswire and MultiVu, in association with IR magazine, Microsoft’s general manager of IR, Bill Koefoed, said he favored the ‘push approach’ provided by the wires when asked about Google’s new disclosure policy.
‘We believe the approach we are taking today is the most shareholder-friendly, and want to try to get our outreach to as many people as we possibly can. Being proactive and doing outreach tends to be more shareholder-friendly,’ he said, although he refused to comment on the Google case specifically.
John Viglotti, vice president of IR analytics at PR Newswire, was also on the call. He said most companies benefit from pushing out news and Google is ‘probably unique in its ability to take that approach’.
So it’s Google vs Microsoft – where have we heard that one before? With players this size on either side of the debate, we can safely say it is about more than just money. One benefit of website disclosure over putting out an earnings release is the ease of doing the editing in-house. Having to pass text back and forth between a company and its wire service for checking and rechecking can be extremely time-consuming, explains Thill.
Of course, money comes into it as well. Jason McGruder, vice president of IR at BGC Partners, told NIRI last year that using a notice and access model for earnings releases meant the cost of each release dropped from around $5,000 to under $500 or $1,000. At the time, McGruder noted the $20,000 annual savings was enough to fund an analyst day, ‘which is a far better investment in terms of IR’.
Other issuers are watching the debate with interest. Now that Google has made its decision, it seems likely more companies will be prepared to follow suit.
‘Google is at the vanguard of early adopters, but you’re likely to see more public companies using web-only postings over time,’ predicts Littenberg.