By Kris Tuttle
This has been brewing for a while but has reached truly absurd proportions. For those that don’t know, technology companies divide their analyst "relationships" along the lines of industry (Gartner, Forrester) and financial (Goldman Sachs, Morgan Stanley.) This means that analysts talk to different people, attend separate meetings and receive distinct types of information and contact points in the company.
Besides having no real foundation in the first place, today this practice has taken on a mantle of irresponsible idiocy that remains somewhat characteristic of large companies. Here are the key reasons:
1. Why would any industry analyst disregard the financial and business aspects of a technology vendor? Why would a financial analyst attempt to do their job without a deep understanding of the technology, product strategy and other "technical" details of the business opportunity? Can one do a restaurant review using just the prices on the menu and not tasting the food? Can you write up the food and ignore the prices of the items? Silly.
2. Industry analysts are no longer distinct from financial analysts in terms of talking to public market investors. Gartner has a huge business built around serving up their analysts to discuss companies with investors. Firms like Gerson Lehrman blur this distinction even further. Everyone is part industry analyst, part business/financial analyst. Every single "industry analyst" firm we know has a substantive business where analysts service institutional investors.
3. Companies holding industry analyst meetings no longer provide any extra information that is financial in nature. They cite the "blackout period" the same way they use it in financial analyst meetings. Another distinction without a difference.
Obviously companies have lots of stake when talking to analysts, which is why they work so hard to craft their message and information to market the image they want analysts walk away with. Of course the primary job of the analyst is to find the reality and relate it to the needs of their own clients, not to grasp and simply repurpose the information.
Analyst meetings are certainly valuable and should continue. But they should be open to both types and a detailed agenda allows analysts to decide how well the program fits with their needs. Pure financial types may elect to skip product briefings and industry analysts may pass on the CFO presentation if there is one.
We realize that the "blackout period" is a dumb invention to comply with "FD" regulations but since there is no objective definition of it nobody knows how to use it intelligently. CXO executives refuse to talk to financial analysts for long periods while customers and prospects continue to get detailed information and participate in regular briefings with the company. All it does is prompt analysts to develop relationships with the clients, channel partners, competitors and prospects for a company which end up being more useful anyway. However company managements lose out because they miss the advice they can get back from analysts who spend time with clients, prospects and investors. The dialog is greatly reduced. Some companies actually pay over $100K for "advice" on how to script their quarterly calls but do poorly at understanding expectations.
We could certainly go on, but today most of the problems don’t impact us any more now that we are outside the oppressive and unproductive broker/dealer research sector, but the industry/financial analyst distinction gets more silly every day.