Since Yahoo! Inc went public in April 1996, its stock price has soared upwards most of the time, surviving even this summer’s bearishness. Of course, from the beginning its founders put almost as much faith in investor relations as in the web, and have done their best to combine the two creatively.
CFO Gary Valenzuela looked after IR until the company’s exponential growth made him realize that he needed to build the department and recruit someone to handle the daily IR function. The first annual meeting was held off-site at an historical Menlo Park theater where six lonely outside shareholders were easily outnumbered by the corporate team.
This year’s on-site meeting had 60 attending, while 20,000 annual reports went to absentee stockholders. Of course even absentee investors can be very demanding, and Valenzuela appointed Andrea Klipfel as IR coordinator in March 1997. In October, Klipfel hired an IR assistant, Trina Somera, to take some of the growing strain. Now Klipfel reports directly to the CFO, but also maintains close links with Tim Koogle, the president and CEO, and Diane Hunt, director of corporate communications.
Time eater
Before Yahoo, Klipfel had worked with the CFO of Intervac, where she inherited the IR function because he had also found that he didn’t have time to take care of IR for the newly public company. Her previous financial training was useful but, as usual, IR exposure stretched it. Intervac is a ‘very technical, hard-to-understand company – a very different realm to Yahoo.’
Of course, representing the ways of Yahoo to investors has its own problems. In the new electronic information sector, where hype and hope can come before a fall, investors and analysts have to forego long-term trend analyses for advertising growth and prospects on the web, and work with extrapolations of future expansion that could easily be skewed because of the lack of history.
Klipfel has learned that investors still look at the sector rather than individual companies. ‘Any company in the internet sector can come down with a negative earnings result and you’ll see the entire sector go down with it,’ she complains. Although Yahoo is way ahead of the rest of the field in usage, revenue and profitability, some investors lump it with other internet companies that so far have nothing to show but great expectations and inflated stock prices.
Change specs
Even those investors astute enough to look at Yahoo in its own right may still be looking through the wrong glass. ‘Some people want to quantify us on a standard PE ratio for example, but that’s not the way we try to present it,’ comments Klipfel. ’15 cents earnings isn’t the basis for investment decisions now: it’s what you think the potential earnings will be down the line in 2002 and onwards that really matters.’
However, Yahoo already has some strong assets that investors can hang their hat on, which she lists as, ‘Effective and timely execution of some core partnerships and core deals; being a pioneering brand on the internet; the distance we’ve driven between us and our immediate competitors; our conservative accounting for revenue; and the ability to manage profitability and reinvest.’
Apart from the company’s ever-growing valuation, vaulting it into the mid-cap range, Yahoo’s other big asset is a strong management team, which is highly IR-positive and actively participates in explaining where the company is going and how it will cope with the competition.
The shareholder mix is slightly tilted to the institutions, which amount for some 70-80 percent, not least because founder investor SoftBank added a $250 mn equity position in July that brought its holdings up to 31 percent. Klipfel reports no concerns from other major holders like Fidelity at such a large position. In fact, Softbank has been a key investor since shortly after the company was incorporated, and has expanded the partnership in other ways. For example, it is a joint venture partner in Yahoo Japan. Around 4 percent of Yahoo’s shares are currently held overseas, mostly in the UK, Germany and Japan, and after two industry conferences in London the company plans to do further presentations there.
Happy mix
Overall, Yahoo is happy with the shareholder mix and has no plans to change it, although the company is trying to target all kinds of long-term investors. It also uses stock surveillance. ‘It’s mainly just to track large block movements, but it’s also very useful on heavy trading days to track what our major holders are doing with their positions,’ explains Klipfel. ‘Especially when you have such a volatile stock, it’s very useful to know what’s going on.’ The large block of steady holders does not reduce the trading volume, which approaches 10 percent daily.
With some two dozen sell-side analysts following the company, Yahoo can’t complain about lack of attention. But Klipfel stresses the need to look after the buy-siders as well. ‘We presented at 23 investor conferences last year, and we also hosted 62 in-house meetings, which were mixed, but included a lot of buy-siders.’
Individual investors are not neglected, although, she confesses, they are definitely high maintenance. For a start, they account for most of the phone calls. Mostly, she says, ‘It’s an educational process, especially with more and more people trading online without the benefit of sell-side research. It means a lot of people can get in or out of the stock without knowing how we make money or generate revenues.’
There is, Klipfel reports, a lot of debate at proxy time about the size of executive options, for and against, and some undue concern from others when executives sell. As Diane Hunt explains, when so large a proportion of compensation comes from options, a stock sale does not mean the captain is abandoning ship.
Web winners
Unsurprisingly for a company like Yahoo, the web site generates a lot of IR response, a lot of e-mail, and a lot of praise for promptness and thoroughness, for example in getting the annual report up there immediately without waiting for it to turn up by snail mail. Somewhat ashamedly, Klipfel admits that ‘while we get a lot of response on the IR site, we don’t break out the traffic by individual Yahoo properties so we can’t measure page views on the IR component.’ (See Policing traffic, page 52.)
But the indicators are good. For example Yahoo expanded the site to give individuals access to analyst calls, and almost 2,400 listened in for the first time when third quarter results were released. ‘As a web-based company, of course we’re always looking for ways to leverage the web. It really is becoming a key tool for individual investors, ensuring that they have access to information. From the IR point of view, timely release on the web also eliminates any potential problems with selective disclosure.’ Yahoo also leverages its internet position by bartering advertising for IR exposure.
Klipfel is unable to confirm anecdotal suggestions that internet trading by individuals is getting increasingly volatile, although she suspects it may indeed have some effect. ‘There are momentum players at all levels of investment, but most individuals tend to be long-term investors, with their retirement funds, college funds and so on, and there are more savvy investors trading online and taking advantage of all that the web has to offer, doing their own research and making well-informed decisions.’ She concludes: ‘If you can get the loyalty of the individual investor, that translates to a long-term relationship.’
One recent coming of age was the advent of Yahoo on the Nasdaq 100, filling the gap left by the merger of MCI and WorldCom. Many observers regard the announcement as a validation of the internet industry. ‘We enjoy the flexibility of Nasdaq, and as a tech stock, Nasdaq has done really well for us, with great exposure, lots of market makers,’ says Klipfel. And she adds: ‘We’ve certainly no plans to move in the near term.’
Naturally Yahoo tries to make the most of the web for IR, with rapid posting of releases and results. ‘We do try to make as much information accessible through any means that we can,’ Klipfel says. To cope with the conservatism of some investors, however, they still use paleolithic methods like blast faxes, mailings and face-to-face meetings.
Management expo
A major IR tactic is to use management time effectively. ‘We present at a lot of financial conferences each year, many of them in New York, and we schedule back-to-back one-on-ones around them to give management as much exposure as possible. That goes for the west coast conferences as well.’ The management team is IR inclined, with CFO Valenzuela and CEO Tim Koogle involved very actively in the program. Indeed Koogle made a presentation to Niri earlier this year.
Yahoo’s IR puts a great deal of emphasis on consistency in its messages, which is all the more important in such a skittishly volatile sector. This approach is epitomized in the annual report, which it has tried to make more than a for-the-record report. ‘We use it as a marketing tool as well, for recruiting, and sales, so it really has to define the entire message of Yahoo, not just financials. As with anything to do with financial reporting, we have strategy meetings so that corporate communications and marketing are both very involved in how we craft the message and how it’s delivered. The important thing is managing a consistent message, so we keep in contact with upper management, do a lot of strategizing. We do a lot of preparation on the report, via conference calls and so on, and make sure all these things flow at the same speed, with the same messages,’ says Klipfel.
There’s a very open relationship with upper management, with no barriers, adds Diane Hunt. ‘It’s very easy to get access to them and their opinions.’ And the thing Hunt has found about Yahoo is that the ‘senior management team spend a lot of time together. They are often around late at night in the conference room discussing things, so we and they are very much on the same page.’
‘Going forward we want to make sure that we can attract and retain long-term investors. That’s probably the primary goal of investor relations at Yahoo. And we’re just trying to keep running a really good company, providing something that people feel good about investing in,’ concludes Klipfel.
