What do small caps get from IR web sites? Do they do more than simply help meet widespread expectations? Do they increase valuation? I studied these questions as part of a masters in mass communications at the University of South Carolina.
Since 1995, several groups have analyzed corporate web sites and made recommendations, asking analysts, for example, what type of online content they wanted as well as how often they used features like webcasts. But they did not ask about return on investment – something held dear by all companies and investors. So the value of online IR is unclear, even though saving money is one of the primary reasons companies rushed to online IR in the first place.
Other organizations such as Niri have already posed the question, ‘What should you put on your IR web site?’ This project posed the logical follow-up question: ‘What are you getting in return for putting this information online?’
I e-mailed a 28-question survey to CFOs and IROs from a random sample of 248 companies with a market cap below $1 bn, asking about their experiences and results with online IR. I received 51 responses, confirming my doubts that a valid quantifiable metric was beyond the scope of this research. But while the survey failed to prove the original hypothesis, it did reveal overwhelming qualitative support that was evident in the answers which were at once interesting and puzzling.
The most surprising finding was that 88 percent of small caps believe their online IR programs increase valuation. And the enthusiasm evident in the anecdotal responses suggests that demand from retail shareholders has pushed many companies to create online sites. Here are two examples: ‘Online IR allows for more timely distribution of information and makes conference calls available to individuals. The more people know about a company, the more likely they are to purchase stock’; and ‘If the site has good relevant information, it does help increase a company’s valuation because it’s easier for analysts to get information on a company and if it is easier, then analysts are more likely to follow you.’
Only one company I surveyed had tried to quantify the benefits. Maybe the rest see the web as one-way or a ‘must-have’ practice, and assume benefits will follow. But there’s a discrepancy between what companies assume and what is reflected in the stock market. Only 31 percent of companies indicate their valuations have increased since they began online IR, while 53 percent say they haven’t. Perhaps progressively better online IR programs have not yet been reflected in higher stock prices.
As one respondent notes, in more general terms: ‘Measuring returns on cost of an IR program is very difficult (impossible).’ Another from a high-tech stock dismisses the need: ‘We feel no ROI is needed for our online IR. It’s expected in our industry and by our net-savvy investors.’
The proportion of IR budgets spent on online IR is relatively small (see chart) so is ROI even worth calculating? The answer is yes. Assessing the potential upside should definitely precede a decision to invest in online IR. Otherwise, the company has no idea of the valuation accretion that may be left on the table.
