Tuesday, July 28, 2015

Crisis IR in the Age of Social Media - IDI

Last week an anonymous blog post caused a mass exodus in shares of IDI Inc. (IDI).

The post appears to have been part of a coordinated effort to cripple the small-cap's stock.

It suggested that IDI was worth $0 -- while at the time the stock traded for $11+ a share.

The situation began when an anonymous blog post was published concurrently on a number of investor sites including ValueWalk and SeekingAlpha (disclosure).

The post provided enough detail as to appear viable.

But as it turned out, it was largely devoid of any facts.

Before anything could be done to address the short seller's allegations the damage had been done.

Once the post was published the stock began heading lower -- and quickly gained momentum to the downside.

Suddenly social media sites were full of people spreading the blogger's serious allegations.

Many of these people had never discussed IDI before online -- and not surprisingly would disappear only a day later.

But for a short time the shorts were in control. 

Shares continued lower -- closing down ~50% Tuesday to ~$6 a share.

IDI stock would soon stabilize -- and begin to recover with a vengeance. 

By the end of the week, IDI was almost back to pre-blog post crisis levels.

Why did IDI's share price stabilize and begin to recover so quickly?

Shortly after the anonymous blog post was published IDI management began to grapple with how to respond.

They had many options.

In the past, public companies have responded to online investor attacks in various ways. I've documented some approaches HERE and HERE.

Companies typically respond via press release -- simply dismissing the allegations.

Of course, the results of choosing that course of action vary. 

In many instances, companies' share prices have been known to languish for long periods of time when they choose the PR response.

So obviously this is not necessarily the best choice.

In this specific instance, IDI shares stabilized the very next morning.


Weeks ago, I interviewed the chairman of IDI for my blog where I write about and interview executives of many of the companies in my equity portfolio.

I also typically contribute those blog posts to investor sites I value including TheStreet, ValueWalk, Benzinga, Stocktwits and more.

While IDI management was deliberating how to respond to the anonymous blog post, I suggested a number of options including my conducting a follow up interview to address the blog post's key points.

After much discussion, IDI management chose to conduct another interview.

In the interview, the CEO and Chairman shredded the anonymous blog post's key points one by one. 

It was quickly apparent that the short's blog post was nothing more than an effort to deceive investors into selling their stock regardless of price.

Once the interview was complete, I transcribed and published it on my blog early the next day. 

I then contributed the interview to TheStreet, ValueWalk, and Benzinga in order to maximize exposure to management's response.

Not long after, the stock began to stabilize -- and shortly thereafter started to recover....fast.

Choosing to be interviewed -- rather than (a) issuing a press release denouncing the allegations; (b) hosting a special conference call; or (c) ignoring the blog post altogether --- was a unique approach that clearly demonstrated management's openness and transparency.

Not one question of my mine was off-limits.

And the results speak for themselves.


In conclusion, anonymous blog posts targeting stocks are published often thanks to many online investor platforms willing to host them.

Furthermore, the ease with which to disseminate those blog posts and potentially negatively impact share prices means public companies need to be prepared to respond.

In this case, management chose to respond by conducting an interview with an independent party who happens to be a fund manager. It appears to have been the right decision.

It will be fascinating to see whether other companies follow this model.

You can contact me HERE.

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