Capital Markets & Investor Relations

IR Monitor – 15th February 2021

Investor Relations News

We kick off this week with a glance at what Tesla’s recent purchase of bitcoin means for the future of accounting. We then look at the emerging importance of company review site Glassdoor, as investors increasingly turn to the platform for an external check on what management tells them about company culture. Next, we take a look at the future of corporate access, pointing to New Zealand’s test and trace technology as an example of what the ‘new normal’ could hold for the workplace. In the wake of the recent Gamestop boom and bust, we then examine what the ‘stonk’ bubble means for policymakers faced with distortions of capital allocation and market dysfunction thanks partly to the prevalence of passive investing. We also look at JP Morgan’s recent decision not to convert to a “public benefit corporation”, which suggests that investors still come first despite the increasing rhetoric on ESG issues. Finally, we cast our eyes over a particularly ‘goosey’ quarterly earnings presentation.

This week’s news

Crypto-intangibles 

Elon Musk is again living up to his reputation as a ‘disruptor’ after his $808 billion electric-car company, Tesla, reported that it had put $1.5 billion into bitcoin and may soon accept the cryptocurrency from buyers of its vehicles. Reuters BreakingViews has called this “a serious challenge to accounting rules.” Bitcoin surged to a record $44,000 following Tesla’s disclosure but the Company won’t mark up the gain or any subsequent uplift in the value of its holdings. The reported value can only go down. Tesla must account for its bitcoin holdings as so-called indefinite-lived intangible assets, a category more common for brands and trademarks. They must be written down in the event of impairments and gains will only come when assets are sold. The flexibility of Bitcoin may appeal to entrepreneurs, Reuters suggests, but investors and accounting setters should be wary of being misled by a potentially huge pot of obscured gains. Observers were divided as to whether crypto investments by companies will catch on. The FT argued that Tesla’s bitcoin bet is unlikely to have many corporate copycats while ZeroHedge took precisely the opposite position with its prediction that every other company in the S&P will follow in Tesla’s footsteps.

GlassDoor’s role in IPOs and measuring ESG 

Anonymous employer rating platform Glassdoor was in the spotlight this week. The Times reported on concerns over the upcoming ‘blockbuster’ float of cybersecurity firm Darktrace, currently valued at £3.8bn. While the suggested valuation has soared, analysts and media are pointing to a wave of negative Glassdoor reviews that cite a toxic sales culture and aggressive management approach at the company, which is worrying investors ahead of the IPO. Alongside this, the FT’s latest Moral Money column has highlighted the important role Glassdoor ratings have in measuring ESG, and particularly the “social” component. Investors are increasingly turning to the platform as a valuable window into a company’s future performance. Last year, analysts at Bank of America found a correlation between positive Glassdoor ratings and a strong stock performance.  FTI speaks directly to Glassdoor for the latest guidance and can offer support ranging from audits to best practice tactics; our most recent paper can be found here.

What post-Covid corporate access might look like 

What will the corporate world look like post-pandemic? New Zealand provides some indication of what the ‘new normal’ might bring, IR Magazine has reported. With no current community transmission of Covid-19, domestic investors in New Zealand have restarted face-to-face meetings. Despite this positive development, Fisher & Paykel Healthcare, the most valuable company on the New Zealand stock exchange, is being anything but complacent. The company has several processes in place to prevent transmission, including credit card-sized Bluetooth trackers worn on lanyards which record when the person comes into close contact with another card. The Company also has an in-house contact-tracing team and the two systems combined mean that infected individuals can quickly be located. Such innovations and discipline could bring back the longed-for human interaction missed by many companies and investors.

The ‘stonk’ bubble poses significant global risks

In an opinion piece for The Financial Times , Carson Block has warned that the recent boom and bust of GameStop shares should serve as a wake-up call to policymakers. GameStop illustrates clearly that capital markets are driven by flows and investor positioning rather than by the underlying fundamentals of businesses. The primary causes of the recent market dysfunction, he suggests, are the prevalence of passive investing and leverage enabled by low interest rates. Passive funds run on autopilot so that, as GameStop’s price rose to ridiculous heights, these funds were almost certainly buying to maintain their balance. The result? A grotesque distortion of capital allocation, ever-rising share prices that have no basis in fundamentals and the birth of yet another meme, “Stonks!”, which is feeding frenzied retail speculation. The way to fix the markets’ contributions to instability is by addressing the distortions arising from passive investing’s growth, Block believes.

JP Morgan’s board rejects switch to stakeholder-focused entity 

Despite CEO Jamie Dimon leading calls for companies to consider the needs of workers, communities and customers, the recent decision by JPMorgan’s board not to convert itself to a “public benefit corporation” has made it clear that investors come first according to Reuters. The board cited a legal review it commissioned stating that when the interests of stockholders and other constituencies conflict at a corporation like JPMorgan, “the board’s fiduciary duties require it to act in a manner that furthers the interests of the stockholders.” That would not be the case for a public benefit corporation, however. Directors at such companies must balance stockholder interests with the interests of other constituencies.

And finally … financial comedy

Bloomberg’s Matt Levine has claimed that nothing in financial comedy can compare to SoftBank Group Corp.’s quarterly earnings presentation. “What is SoftBank Group?” asks the first slide, in approximately three different fonts. The second slide is just a picture of a goose. You know you are in good hands, at that point. “Yes, this is the stuff,” you say to yourself, looking at the goose. The third slide says, “Consolidated Results,” in a fourth font. The succeeding slides are charts of financial results. Then there is a merger case study. You wait patiently. The goose comes back on the 15th slide. “SoftBank Group = Producer of golden eggs,” it says. Your wait has paid off. The next slide is the same except now the goose has a little pink sign saying “Information Revolution” tied around its neck. Although Levine is unsure as to whether the most recent offering is even in the top 10 funniest SoftBank presentations, it might be funnier than any earnings presentation that any other company has ever done.

Conferences

16 February: Industrial Select Conference, Barclays (Virtual)

16 February: Global Industrials Conference, Citi (Virtual)

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