Given the number of grand pronouncements from Web entrepreneurs and analysts who follow Internet companies, it is obvious that the financial services industry needs a few more Emory Leesons.
Emory Leeson (no relation to Nick Leeson, the trader who put Barings Bank out of business) is the main character in a 1990 comedy "Crazy People." Emory, a stressed-out advertising executive played by Dudley Moore, becomes increasingly disillusioned with the hyperbole passed for truth by the advertising industry.
In a moment of clarity, he drops the pretense endemic to his profession and proposes an honest approach to pitching Volvos: "Yes, they're boxy, but they're safe." His agency colleagues promptly have Emory committed.
The financial services industry is deluged daily with inflated press releases from Web commerce companies proclaiming noteworthy technology breakthroughs. Adding to the flood of Internet-related releases are the reports written by market analysts unburdened with accountability and making wild predictions about consumer acceptance of new "killer apps" for Internet banking. These dubious communiques are given increased importance and credibility through coverage in credible, independent news outlets.
Emory Leeson would surely be a better model.
Assertions in Web-related press releases have reached outrageous new levels of overlooking often uncomfortable and inconvenient facts, even for companies operating in an industry that coined the term "vaporware."
One wonders whether the rationale isn't, "Hey, it's only 500 bucks to put this press release on the wire and in the Web databases (the New Economy's version of the vanity press), so let's see what kind of buzz we can create. Maybe this will move the stock (or help us with, say, round eight of our venture capital funding)."
Unfortunately, it isn't just the writers of press releases and analyst reports who have lost touch with reality. In the Internet environment, where there is often no profit, the "story" is all-important.
For example, I recently listened to several Internet firms' quarterly earnings conference calls with stock analysts. Consistently, company executives minimized escalating losses and excused an extraordinary new level of expense by pointing to all their new customers - and amazingly enough, the analysts congratulated these companies on their progress.
Personally, I don't know whether to be amused or disgusted. Here are presumably highly educated and well-trained professionals, folks charged with thinking clearly enough to make public recommendations about a stock, and they actually believe the story that volume will make up for no profit and bigger losses? You really have to scratch your head and wonder how we've come to the point where analysts sound like enthusiastic hucksters for these companies.
Here are a few recent examples of press releases and media accounts from aggressive Web companies playing fast and loose with language, and the truth:
- From a news story about an Internet bank CEO announcing a stock repurchase program - "the current stock price does not reflect the company's profitable operation." This is accurate but not in the way the CEO envisioned. With a price/earnings ratio bouncing between 80 and 130 - the banking industry is averaging about 14 - just how much more should a first-quarter 1.1% return on equity, virtually all of which is attributable to an extraordinary gain, be worth to this company's investors?
- From a press release issued by a technology firm that shamelessly describes itself as "the world's leading provider of Internet-based financial service solutions." In what way is it leading? Does it have the most announced class actions alleging management malfeasance - 12, in this company's case? Greatest negative variance from the consensus earnings forecast - 44%? Largest operating loss - $111 million in the first quarter?
- From a wire service report about an Internet software firm: "Shares soar after cash infusion ... rocket[ing] more than 20% on Friday." That's impressive until you consider that the closing price on Friday was less than the closing price on Wednesday - just two days earlier, before the big cash infusion, and roughly 70% below the company's 2000 high.
Are these headlines and claims attention-getters? Sure, they are. Do they help create an illusion that something important is occurring? Yes, they do. Are they accurate and reliable reports of the true state of affairs? Absolutely not.Here's a word of advice for the wishful thinkers at Web commerce companies who embellish press releases or put a more favorable spin on an obviously negative result: The stock market is reasonably efficient and will reward real performance and punish poor performance, regardless of what you disseminate.
Meanwhile, please spare the rest of us from the blatant exaggerations, misuse of the English language, and lack of logic that afflict your announcements and claims. Or, as Emory Leeson might say, "Internet banking: Yes, it sounds impressive. But no one's really making money at it."
