9 July 2013

Corporate Valuation: The Impact of Industry Analysts

With Great Insight, Comes Great Heft

When communications professionals discuss the reasons for interacting with industry analysts, the focus is often on obvious evidence of analyst influence – a curt comment in The New York Times or in a piece of financial reporting. Analysts are recognized for their direct impact on end user purchasing decisions and their ability to influence journalist perceptions. There is also a third leg of influence that receives less attention - their ‘behind the scenes’ impact on corporate valuation.
Simply put – some industry analysts have high levels of impact on investor sentiment, which in turn creates perceptions of corporate worth and valuation –usually forging consensus on a company’s chances of thriving and surviving (or not).

Mining For Nuggets of Insight

These analysts can be hard to find, but they can be powerful advocates or detractors for a vendor – or even a specific market space. One storage analyst we spoke to revealed that as many as 50% of his ‘behind the scenes’ inquiry calls were with executives within the investor community – people making decisions on financial investment. 50% is an unusually high ratio but it demonstrates the kind of frequency with which analysts are tapped for their contextual insights.

Probably the four most common scenarios for analysts to advise on vendor viability and valuation are:
  • An established vendor faces existential challenges, and is in a period of transition to a new business model and/or strategy
  • Violent changes in the tech landscape – think new disruption, new market segments, new technologies
  • An IPO offering, or a reverse switch from public to private ownership
  • Record breaking financial results, or a record breaking decline
Gauging the Dynamics of Emerging Segments

Analysts are not immune to getting overexcited when The Next Big Thing Comes Along, but on the whole it’s fair to say that they do a pretty good job of contextualizing vendor’s corporate valuation regarding risks and rewards – present and future. Let’s look at a recent example: The security company Palo Alto Networks has been one of the tech sector’s big success stories; last year it went public. Let’s look at how analysts shaped perceptions around the company’s prospects. In e-week’s piece Palo Alto Networks Ups Stock Price Range Before IPO the journalist quoted Gartner’s Greg Young – the firm’s ‘go to’ expert on Firewalls, to get his take on the vendor’s strengths. Zeus Kerravala, principal analyst with ZK Research, also chimed in with his assessment about the increasing competitive impact on Cisco and Juniper. In both cases analysts shared insight on why - and how - the vendor disrupted the market successfully.

We All Hit Speed Bumps Sooner or Later

Analysts often express admiration for the company’s technologies, leadership and philosophy – but, and it is a big but - that won’t stop them painting a frank assessment of its challenges as it evolves. A good example of this practice is IT Harvest’s Richard Steinnon. In his Forbes blog Tearing away the veil of hype from Palo Alto Networks' IPO he made some interesting points about Palo Alto’s financial results. He also shared his views how much it might be displacing competitors and whether it has now saturated the market it so successfully disrupted. If that is the case, the next phase of Palo Alto’s corporate evolution will require new growth in new markets.

Defining Future Success & Growth

The examples I’ve painted here are 'visible' ones, but remember that many of these analysts will also be sharing their POV in private conversations behind closed doors. At all stages of a company’s evolution, analysts will be closely watching to gauge competitiveness, viability and valuation – hence the importance of keeping them up to date on corporate success and future technology plans.

By Tris Clark, Director of Influencer Relations (SAS)

Is your company doing all it can to ensure industry analysts recognize your true corporate valuation? If you’d like to know more, contact H+K Strategies’ US AR team: mathew.small@hkstrategies.com and tris.clark@hkstrategies.com