Jim Harrer

STARTUPS, TURNAROUNDS, APPDEV, AGILE & LIFE...

Facebook's Stock, their float and the importance of a solid Investor Relations (IR) strategy.

I took a mini vacation for the past week, I came back to several emails regarding my thoughts on Facebook and why I was holding on to the handful of shares I purchased in the IPO.  I didn't think the post would generate so many negative emails. Before I respond, I want to make it clear, I don't edit comments left on this blog.  I would prefer you post comments, rather than send me emails debating my blog posts so others reading this blog can also chime in. You can post as a guest if you don't want to leave your name. 

Facebook's Overhang

Several of the emails I received felt I didn't emphasize the amount of stock which would flood the market through the rest of the year. To recap, prior to last Thursday, Facebook had 421 million shares in it's float, on Thursday they unlocked 268 million shares which is what helped drive the stock to an all time low of $19.05. In October, another 192 million shares will unlock and then right before Thanksgiving, a large block of 1.2 billion shares will unlock.  As many of you pointed out in your emails, this is a fundamental supply and demand problem.  One email went on to say that technology fund managers may also reallocate their portfolios this quarter, which will add additional downward pressure in September. Another said that some fund managers no longer believe they need to have Facebook in their portfolio and pointed to the mass exodus on Zynga and Groupon from popular tech funds. 

I can't argue with these comments and the fact the Facebook brand is taking a school yard beating right now. In hindsight, the overhang in the stock should be a concern to any investor thinking about $FB.  I can't agrue with supply and demand. Who is going to buy this 1.4 billion of new stock? Does anyone know the answer? 

Another email said I didn't spend enough time pointing out Mark Zuckerberg's lack of maturity and that I should have suggested he would better serve his shareholders as a Chief Technology Officer, not the CEO.  I see his point, however I don't have enough information to agree or disagree. I don't know Mark or his BOD. Call me old fashion, I invest in people and am usually LONG in my investments, therefore I haven't given up on Zuckerberg just yet.  Their BOD must have faith he can hold the top job.

Finally, another email suggested that their CFO, David Ebersman isn't a strategist and doesn't believe in "Investor Relation" programs.  Again, have no idea if this is true.  It does appear that management is MIA (missing in action). For those of you who are not familiar with IR strategies, let me share one with you, around the quarterly earnings report that I had great success with.

The art of Investor Relations

Investor Relations StrategyWhen I was the CEO of Mustang Software and Starbase Corporation, both NASDAQ traded companies, I learned about the importance of having a well defined Investor Relations program. I worked with my Chief Financial Officer and a small team of investor relations experts to craft up a plan to focus on building better relationships with institutional investors, financial analyst and financial journalists.  As the CEO of a public company, I invested a solid three weeks each quarter building a relationship with our investors and influencers.  Here is the general idea:

  • Day 0 - Earnings Release and Conference Call, 4pm EST on a Tuesday, catch red-eye to New York.
  • Day 1 - Personal Appearance on CNBC, Bloomberg and Fox Business News. Dinner with largest institutional investor.
  • Day 2 - One-on-One briefings with our top NYC Financial Analyst who publish research reports. I could normally get this done in one day. 
  • Day 3 - (Friday) Meetings with our NYC based major stockholders.  I would target 6 one-on-one meetings a day, I would go to them.  Facebook has the clout to have major stockholders come to them and get more meetings in per day.  We also utilized breakfast and dinners for additional meetings.

-Travel to Boston-

  • Day 4 - (Monday) - A mix of investor and analyst meetings in Boston.
  • Day 5 - (Tuesday) - Wrap up Boston, catch red-eye to San Francisco
  • Day 6/7/8 (Wed-Fri) - A mix of investor and analyst meetings in San Francisco

- Travel to Seattle-

  • Day 9 (Monday) - A mix of investor and analyst meetings in Seattle.
  • Day 10 (Tuesday) - A mix of investors and analyst meetings in Portland.
  • Day 11 & 12 (Wed-Thur) - A mix of investor and analyst meetings in Los Angeles
  • Day 13 - Travel Home

I attended each meeting with my CFO. Our head of Investor Relations managed the calendar, kept detailed notes of each meeting and managed all of the follow-up items. It was a grueling schedule, but one that I think the investment community appreciated.  Don't kid yourself, investors talk to each other and many will IM each other when you leave their office. You must be prepared and on your game or they'll eat your lunch.  Your CFO needs to have a damn good briefing book, which will get better after each and every meeting.  In order to be successful you need to be able to critique each meeting, searching for ways to improve.  You also need to have thick skin and be able to stay cool, especially when investors are underwater.  Can this IR road show be delegated to the CFO?  Yes, however not in times of crisis.  If Facebook asked for my advice, I would suggest both Zuckerberg and Ebersman hit the road.  It's leadership's responsibility to find a home for this overhang.

I did this IR Road Show every quarter.  I didn't hide after our earnings report. I wasn't popular with all of our investors and the hedge fund managers who were pure dicks to me when I stopped by for our one-on-ones, got cut from future visits. My point is, investors and analysts need communication and accessibility to leadership.  The IR road show was designed for CEO/CFO to make themselves visible to investors and to get out the facts about the business.

Facebook's silence is not a good IR plan.

Right now, they're silent which comes across as arrogance.  Be careful when you thumb your nose to Wall Street, you can't do that without also thumbing your nose to some of your 845 million monthly users who also purchased 10 shares of your stock.  In my opinion, this all impacts your brand, customer loyalty and erodes your support base.

My advice to Facebook?

Focus more time on your Investor Relations strategy.  Don't leave it to chance.  Don't hide in your office, get out and meet more of your investors.

...Jim

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Friday, 17 November 2017
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