Tuesday, August 2, 2011

Will Netflix CEO Hastings usher in a new era for online finance, investor relations & social media?

Netflix CEO Reed Hastings is a remarkable entrepreneur. He founded a DVD-by-mail business in the late ‘90s that now boasts 25+ million subs and is disrupting the media and entertainment industries.

But similarly impressive and yet possibly overlooked is how he’s provided a blueprint for the future of online finance, investor relations, and social media. It’s not farfetched to conclude that Hastings’ latest actions will be the catalyst for a new way in which public companies court investors online.

Over the years, Netflix has experienced intense scrutiny especially as its stock price has appreciated. In response, CEO Hastings has been the model of transparency and accessibility. He regularly updates a PowerPoint presentation detailing Netflix’s strategy and future challenges and pens a lengthy shareholder letter after each and every earnings announcement. Hastings also broke with tradition and opened his quarterly earnings calls to all investor questions regardless of their source. Questions are submitted via email and earnings calls are Q&A-only in order to provide for more interaction with the sell-side, buy-side and retail investor communities.

In an even more dramatic move, Hastings went on the offensive recently in response to a critical presentation by a prominent value investor short Netflix. Instead of following the Patrick Byrne playbook of disparaging short sellers, Hastings responded respectfully and diplomatically by submitting a persuasive blog post to an investor site. He also conducted a lengthy and incredibly informative interview with former Merrill analyst Henry Blodget at Business Insider. Hastings was rewarded for his efforts as reflected in his stock’s subsequent move higher.

Like any CEO, Hastings values his time. He chose to target large online networks of engaged investors to deliver his message. And it worked. So why aren’t other CEOs following a similar playbook, especially small-cap CEOs who are typically starved for attention? Clearly Hastings’ methods aren’t rocket science.

The simple answer? Except for StockTwits and Motley Fool, the current group of financial content websites (i.e. TheStreet, SeekingAlpha, Minyanville, Benzinga, etc.) has done little to pursue public companies and their pent-up desire for a social media presence to complement their IR websites. Instead, massive amounts of valuable investor content sits largely undisturbed on predominantly little trafficked IR websites. Furthermore, CEOs like Netflix’s Hastings who have loads of strategic and actionable investor information to communicate (within the parameters of RegFD) have yet to be unleashed online.

The fact that financial content sites aren’t paying attention to public companies and their pent-up desire for a social media presence is truly mystifying. With so much competition in the financial content space, little differentiation, and the endless pursuit of exclusivity and revenue, it’s difficult to understand why they’re not pursuing this massive opportunity. The traffic potential of public company CEOs actively engaging on investor sites is enormous.

StockTwits’ IR service and Motley Fool’s periodic community-driven Q&As with public company CEOs are the obvious exceptions. They provide public companies the opportunity to reach investors who may not otherwise be visiting corporate IR sites. Most important, StockTwits and Motley Fool provide public companies a platform to reach “new” or potential investors. The ability to reach “new” or potential investors is exactly why public companies need a social media presence to complement their corporate IR sites.

My friend David Collins, who runs NYC-based investor relations firm Jaffoni & Collins and was an early proponent of using social media for investor relations, puts it this way:

“I find the most valuable thing an IR effort can do is to help a company get discovered! Having great content on a site that they (investors) don't know of and aren't visiting - is not a good strategy. Social media is a great way to get in front of new investors and leverages whatever you are doing or not doing online. It also allows you to traffic in data that is not a press release - and point out articles and research and background that pertain to your client. Companies should be doing it…..“

Going forward, one of two things will happen -- either public companies will pursue creative Reed Hastings-type strategies and proactively target investors online OR financial content sites will follow the lead of StockTwits and Motley Fool and roll out services to tap the pent-up desire public companies have for a social media presence.

Once one of these two scenarios plays out all public companies regardless of size will finally have a voice, investors will enjoy vast amounts of additional actionable information and greater access to management, and the promise of social media for investor relations will finally come to fruition.

NOTE: Those financial content sites seeking ideas for services they could provide should look no further than my own experience at SeekingAlpha, discussed here.

1 comment:

Lisa LaMagna said...

This is an excellent post. As you point out, the typical knee-jerk response to short sellers -- to denigrate them -- could not be more wrong and short sighted. Mr. Hastings takes a lot of heat (eg. Netflix's recent decision to raise prices) but they are backed up by sound business reasoning. Companies could benefit from benchmarking investor relations programs to Netflix.