The lessons your company can learn from Facebook’s share collapse
The massive hit Facebook took on its share price last week underlines the importance of clear, concise and accurate communication around your financial reporting. As the tech giant saw a record US$119 billion wiped off its market value in just one day, investors were left wondering what went wrong.
The catastrophic collapse in the Facebook share price is the largest single day drop of all time, dwarfing even the burst of the dotcom bubble in 2000 that saw US$91 bn and US$77 bn wiped off Intel and Microsoft respectively. But Facebook’s day from hell was accompanied by no bubble bursting, nor did its rivals suffer similar fates.
One analysis from Bloomberg blamed the investor reaction to Facebook’s disappointing results on poor communication. The company wasn’t explicit enough about the impact that various changes it was undertaking would have on its earnings ahead of time, and its explanations for the missed targets came after the release, and were unwelcome news to its shareholders.
The panic that ensued is just one outcome of poor communications at reporting season; more severe errors can lead to fines and even jail terms for executives.
While Facebook survived the day with a valuation still in excess of $500bn (and about what it was valued in May), such a collapse would cripple most companies. If a giant like Facebook, with its near-unlimited resources, can still miss the mark with the quality of its financial communications, what chance do smaller firms have?
As Facebook proved, updating the market on earnings and targets is probably the most volatile time for any company. The curation of the report can often end up being as share price sensitive as the content of the results themselves.
Taken at face value Facebook’s performance wasn’t particularly bad, but it was the way executives then laid out blow after blow in the investor call that really spread the panic. These interviews and press follow-ups should, when handled expertly, be used to foster positive sentiment with investors.
In Australia most companies release results updates twice per year, meaning for many businesses an external agency, or even an extra full-time salary, is out of the question.
Instead, it falls to existing staff members to pick up the extra work, resulting in long hours and an ‘all hands on deck’ mentality in order to get through this time of year.
Yet as Facebook, and many before them have shown, this is not an area your company can afford to be complacent or take risks in.
Anyone who has navigated reporting season understands how complex it is. Many hands do not always make light work. The services of specialists are often overlooked in the world of corporate communications as a luxury for the largest firms with budget to spare. But in today’s world of freelance working, that is simply not the case.
And this is where specialist freelancers can be a godsend.
Hiring experienced financial communications specialists on a short-term, freelance or flexible basis can completely change the way a business tells its story.
The knowledge of what messages to stress and which numbers to give greater prominence can turn a poor set of results into an encouraging one. Experience working with the financial press and a healthy book of contacts can help give the good news the push it needs to really turn the financial dial, and investor sentiment.
With evolving models of work, specialists can now be drafted in as and when it is needed, at a fraction of the cost of a full agency or full-time salary, and removing the need for internal teams to stretch to carry the burden of reporting.
With this greater availability, and given the potential risks of poorly handled results, there is little reason for anyone to settle for less than expertise when it comes to financial reporting season.
And as the Facebook episode demonstrates, not even one of the world’s largest companies is exempt from failure to execute excellence in financial communication.