KCSA PUBLIC RELATIONS, INVESTOR RELATIONS BLOG
Posted by Jeff Corbin on August 7th, 2012
Facebook has made it through its first earnings season. Battered and bruised but still alive. After listening to the Facebook earnings call and carefully studying its first earnings report and listening to the fallout from investors and the press, I sat down and wrote Mark Zuckerberg a letter on what he can do from a financial communications standpoint to stop the bleeding.
Dear Mr. Zuckerberg:
Several months ago I sent you and Mr. Ebersman by FedEx a copy of my recently published book on investor relations, Investor Relations: The Art of Communicating Value. As an investor relations professional for more than 15 years, I know what you were going through as you were preparing for your IPO and therefore maybe you didn’t receive it or have a chance to read it. So, I am enclosing another copy.
Given what has transpired with your stock since the IPO and given the reaction of the investment community to your first earnings as a public company, I thought I would share with you some thoughts on what you can do to improve the situation. There is undoubtedly a credibility issue that exists with Facebook for a multitude of reasons which have been well publicized by the media so there is no need to repeat them now. The crux of the issue is one which my book addresses – what Facebook is communicating publicly is not supporting the valuation that you went public with, nor the company’s valuation today.
So here’s what should be done before more investors buy stock in your company only to find out that they bought in against the well known principle of buy low, sell high – or, for that matter, to ensure that current shareholders don’t continue to sell. I have consulted with my staff of nearly 20 IR professionals who have represented hundreds of publicly traded companies and have decades of experience. I hope the following is helpful.
1) Consider the words you say and how they are positioning Facebook. Based on the conference call, Facebook’s main revenue is built around an advertising business model, which shares some similarities to Google’s revenue model. So, why should Facebook be trading at 8x analysts’ estimated 2012 revenue of $4.9 billion when Google has been public for a much longer period of time but only trades at a 4x multiple?
In order for Facebook to deserve a higher multiple, it needs to explain more specifically why its growth rate will be higher. General statements about a hopeful mobile strategy, just won’t do it and this is a probable reason for the stock’s recent decline.
2) You need to be more specific about future milestones and how you are going to accomplish your goals. You need to lay out benchmarks for execution that investors can follow. As investors, we need to know about your business plan so we can gauge your ability to execute successfully. If you properly communicate this roadmap for growth, you will be rewarded with an appropriate valuation and appreciation from your shareholders along the way. If you don’t, your valuation shouldn’t improve and your company will continue to be criticized by the investment community and the media based on their own expectations.
3) Don’t wait until your next quarter earnings to tell us more. As I said before, Facebook has a credibility issue from an IR perspective. And, with 1.7 billion shares coming out of lock-up by the end of 2012, you need to do something now to stop the bleeding. Here’s what you should do:
a) Host an investor day on the Facebook platform and invite EVERYONE, not just institutional investors. Revise your presentation so it offers more details about Facebook’s mobile strategy – from a business, not philosophical sense. This can be done without sharing any trade secrets. Investors understand and respect trade secrets, and just want to know what the business plan is to make money. Give a conservative timeline of what’s going to happen in order to accomplish this business plan and the important milestones. You can then substantiate what you are saying by issuing press releases along the way.
b) Use the Facebook platform to host the presentation and show the world the many reasons why your company is so special and important. You don’t have to take questions orally – give investors the opportunity to send their questions electronically and be prepared to answer the ones that are the most important and least confrontational. Ignore the ones from the disgruntled investors. Keep the “call” to no more than an hour and make sure your IR team is prepared to respond to every question after the presentation. (Many responses will be the same so this shouldn’t be as onerous as it sounds.) I can assure you that this will go a long way in restoring the IR credibility of the company.
4) As a follow-up to the call, prepare a thoughtful, short and insightful letter to shareholders. Make sure it lays out the essence of your business plan as discussed above. You should expect that the media will get their hands on the letter so consider this in the words you use. But remember, this exercise is all about rebuilding credibility and setting forth a business model that justifies an appropriate and fair valuation.
5) As the CEO of Facebook, you should embrace a strategy for speaking with your investors, particularly the individual investors, many of which have a large portion of their savings and retirement accounts in your stock (either through direct purchase, mutual funds or their 401k accounts). You owe it to them to make them feel comfortable that you are in charge and that their investment will pay off. I suggest you create a video that can become viral (again through the Facebook platform) in which you share your empathy for the fact that every investor is important and that you recognize that one of the reasons they have invested in Facebook is because of you. Generally speaking, people invest in companies because of (1) an opportunity for growth (and to make money), and (2) the fact that they believe in the company’s leadership and its ability to deliver results. Consider the behavior of great CEOs like Jack Welch, Steve Jobs and Lou Gerstner.
6) Even though it might be difficult, you should give some sort of financial guidance. LinkedIn gives a full-year outlook. This is what helps to justify the higher multiple. Absent it, there is a perception that a company doesn’t have a grasp on where its business is going.
7) One last thought for now – involve your mobile strategy senior manager in the investor discussion. During your conference call, you put out a metric for investors to follow and to gauge your success. You said that we should follow the advertising revenue derived from sponsored stories and news feeds, which was generating $1 million a day by the end of June, half of which was from mobile. Investors will be keeping an eye on this metric so it will help to involve in the conversation with investors the person responsible for delivering on this. Given the expected growth opportunity, this is where you will be able to justify a higher multiple of revenue than Google.
If I can offer you one piece of strategic advice (the above are merely tactics), remember that the numbers speak for themselves. They are what they are and don’t lie. It’s the commentary around the numbers that really explains what they mean and ultimately justifies a higher growth multiple and valuation.
Again, I hope you receive my book and that it is helpful in the coming quarters and years.
KCSA Strategic Communications