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DealBook: Businesses Take a Wary Approach to Disclosures Using Social Media

Richard Brian/ReutersReed Hastings, chief of Netflix, used Facebook to brag about his company.

Zynga’s latest quarterly earnings report, released on Wednesday, came in the typical format and was accompanied with the usual financial tables investors expect.

But the social gaming company that counts FarmVille among its games included a new addition: a 204-word paragraph encouraging investors to check its corporate blog and Facebook and Twitter pages for regular news updates.

It was just one of dozens of companies taking advantage of newly clarified rules from the Securities and Exchange Commission that have now blessed the use of social media sites to disclose financial information.

Although social networks have proliferated for years and the public more readily turns to Twitter than the S.E.C.’s Edgar Web portal for updates, the agency just a few months ago was still evaluating whether using newer outlets would violate its rules.

Even with the updated guidelines, uncertainty over what exactly the commission will allow has meant that many companies, and their legal teams, are playing it safe this earnings season.

“Right now it’s like the Wild West,” said Broc Romanek, editor of TheCorporateCounsel.net, a Web site that focuses on S.E.C. rules and regulations. “The S.E.C.’s guidance is definitely going to need to be further refined.”

For instance, when General Electric released its earnings last Friday, the company mentioned its Twitter and Facebook accounts for the first time, noting that they “contain a significant amount of information about G.E., including financial and other information for investors.” A quick check showed that G.E. has at least 10 different Facebook pages and 10 different Twitter feeds. A company spokesman, Seth Martin, however, said the conglomerate would continue to rely on news releases to communicate material information.

“While we currently have no plans to disseminate material information using social media, we will comply with S.E.C. guidance as it evolves,” Mr. Martin said.
Others may simply be hesitant to leap into the world of 140-character messages out of fear of security. Earlier this week, the Dow Jones industrial average briefly plunged 150 points after hackers gained control of The Associated Press’s Twitter feed and falsely reported explosions at the White House. A similar fake report on a company stock could easily cost investors billions in a matter of seconds.

Not long ago, regulators regarded social media sites with skepticism.

Until now, information that has the potential to affect a company’s stock price had for the most part been relegated to the bureaucratic sounding form 8-K, the S.E.C.’s document of choice.

Last year, the S.E.C. warned Netflix that it might file civil claims after its chief executive, Reed Hastings, bragged about subscriber numbers on his Facebook page. But after the ensuing reaction against the agency’s view, the S.E.C. gave in a little, saying this month that social networks were acceptable news outlets — as long as shareholders knew which to check. The new rules update the S.E.C.’s Regulation Fair Disclosure, which requires companies to publish material information to all investors at the same time.

A spokesman for the agency, John Nester, argued that the new guidance on social media should not be too confusing, given how quickly companies adopted a 2008 rule that allowed the use of corporate Web sites in addition to S.E.C. filings.

“Companies were able to figure out how to use our guidance to disclose information on their Web sites, so there’s no reason they shouldn’t be able to do the same with social media,” he said in a statement.

In practice, corporations are experimenting with a wide variety of policies. In its earnings release last week, AutoNation listed five different places where investors could find information about the company, including the Facebook and Twitter feeds of its chief executive, Mike Jackson.

Netflix itself listed in a securities filing five different places where investors should check regularly for more information. Among them: its corporate blog and Twitter feed, as well as the chief executive’s personal Facebook page.

Glen Ponczak, a vice president for investor relations, at the manufacturer Johnson Controls, said that the company had started posting information on Twitter several weeks before the S.E.C. outlined its new policy on social media, but that it was very much in experimental mode. On Twitter, the company posted a link to its earnings call, but did not post any updates from the earnings call.

“We’re starting off slow and learning what we need to do,” Mr. Ponczak said. At least for now, he added, “it will not be our primary disclosure point.”

Lawyers who focus on disclosure issues expect a bit of experimentation, and heavier use by technology companies whose business models are already heavily dependent on social media.

“The S.E.C. is not going to let companies be sloppy,” Thomas A. Sporkin, a former S.E.C. enforcement official and now a partner at Buckley Sandler, said. “The investing public needs to know where to go for disclosures, and the division of enforcement is going to be vigilant on this.”

And for some legal teams, the old formats of S.E.C. filings will still likely be the preferred method of disseminating financial news.

“Most companies are going to use social media as a supplement,” said Amy Goodman, a partner and co-chairwoman of the securities regulation and corporate practice group at the law firm Gibson Dunn Crutcher.

“You can’t go wrong if you file an 8-K. That’s your insurance policy.”

Earnings Reports and Social Media

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Article source: http://dealbook.nytimes.com/2013/04/25/businesses-take-a-wary-approach-to-disclosures-using-social-media/?partner=rss&emc=rss

Strategies: Apple Stock Isn’t a Bellwether, Even if It’s Big

THE rise of Apple shares over the last few years was meteoric. Their fall over last few days has been traumatic. But these gyrations may not matter much to the overall stock market.

They will matter, of course, if you lost money as Apple dropped from $702 in September to $439.88 on Friday. And the company’s struggles may be of more than passing interest even if you never intend to own any of its shares.

Apple remains a colossus, even if Exxon Mobil surpassed it as the most valuable publicly traded company in the world on Friday, exactly one year after iPhone sales propelled Apple to the top spot. Still, all of those iPhones, iPads and other gadgets make Apple matter in many households.

But the company’s influence on the stock market is another question. Aside from the drag that Apple’s decline has imposed on indexes that include it, its recent travails haven’t affected other stocks very much, and they don’t provide much information about the market as a whole. That’s the view of Paul Hickey, co-founder of the Bespoke Investment Group, who has some statistics to support it.

“The company just isn’t the market bellwether,” he said.

In good times and bad, Apple has largely gone its own way, and the rest of the market hasn’t followed its lead. Apple isn’t nearly as influential as, say, I.B.M., which appears to be the true market bellwether, Mr. Hickey contends.

I.B.M. is the market leader — the stock that other stocks follow — based on Bespoke’s calculations, which are boiled down into one statistic. That is the likelihood that a stock’s return on the day after its quarterly earnings report matches the direction of the Standard Poor’s 500-stock index over the next five weeks.

Over the last decade, for example, the rise or fall of I.B.M. stock on the day after the company reports earnings has matched the S. P. 500’s direction 75 percent of the time. That’s the highest percentage for any stock in the index over that period. The comparable figure for Apple is only 37.5 percent.

If those tendencies continue — and that’s a big “if” — bulls have reason to cheer. Both companies issued earnings reports last week, and they received very different reactions in the market. After the close of trading on Tuesday, I.B.M. reported rising profits on a modest decline in revenue, and the market reaction was strikingly positive. I.B.M. shares rose 4.4 percent on Wednesday. If I.B.M. is the market bellwether, it implies that over the next five weeks, the overall market is likely to rise.

Apple, on the other hand, reported earnings after hours on Wednesday, and the market reaction was brutal. Apple’s guidance for 2013 disappointed analysts — its profit was flat although its revenue grew — and its shares fell more than 12 percent on Thursday. But Apple isn’t a bellwether, Mr. Hickey says. Its earnings reports and its returns the next day have not matched the market’s subsequent five-week direction with any regularity.

Looking at the short term, Apple shares have often moved quite independently of the rest of the market, too. On Thursday, for example, the S. P. 500 was flat for the day despite the steep drop of Apple, which accounts for more than 3 percent of the index. The Dow Jones industrial average, in which I.B.M. has the greatest weight, at more than 11 percent, doesn’t include Apple at all, and it rose slightly for the day. On Wednesday, by contrast, both indexes rose, along with I.B.M. and Apple shares.

Why should the market’s one-day reaction to I.B.M.’s earnings have anything to do with market returns over the next five weeks? Mr. Hickey speculates that I.B.M., which provides sophisticated, integrated digital solutions to business problems, now derives revenue from many of the world’s big companies and accurately reflects the prospects of corporate America. “When I.B.M. is doing well, a lot of the corporations in America are doing well,” he says.

But it’s quite possible that the apparent connection between I.B.M.’s earnings and the overall market direction is nothing more than an anomaly, and may not continue.

That’s the assessment of Burton G. Malkiel, the Princeton economist and author of “A Random Walk Down Wall Street,” the investment book now in its 10th edition. He has found that, for the most part, the stock market does not follow predictable patterns.

“If it did,” Professor Malkiel says, “money managers would be able to beat the market regularly, but the vast majority of them can’t.”

Article source: http://www.nytimes.com/2013/01/27/your-money/apple-stock-isnt-a-bellwether-even-if-its-big.html?partner=rss&emc=rss

DealBook: Businesses Take a Wary Approach to Disclosures Using Social Media

Strategies: Apple Stock Isn’t a Bellwether, Even if It’s Big

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