WHEN Dell Inc. (NASDAQ: DELL) accidentally posted earnings information on the web prior to their official announcement last week, it was a little like seeing a poster child for online disclosure fall from grace.
None of the usual crop of online disclosure pundits uttered a word about it, as if to do so would cast a shadow over one of their own.
But failing to analyze Dell’s misstep is a missed opportunity for all of us to learn from their misfortune. Digging deeper into the circumstances surrounding the gaffe and reviewing the market’s reaction to the inadvertent disclosure provides important lessons for anyone interested in how the web can and should be used for corporate disclosures.
As I’ve looked into the incident, 3 key takeaways occur to me:
Lesson 1: News spreads fast on the web — and that’s a good thing
It’s not clear to me when exactly Dell accidentally posted details of its earnings on its website (see Lesson 2 below). It’s not even clear whether the information that was posted was in the form of a presentation, blog post or some other document.
What is clear, though, is that some investors found it and then used the information to inform their trades, which in turn attracted attention from other investors and eventually Dell itself.
The period of most intense activity covered 21 minutes, from about 3:36pm until Dell, seeking to limit the damage, issued its earnings release ahead of schedule via Business Wire at 3:57pm. During that period, around 23 million Dell share were traded and the stock rocketed 6% higher.
There was a dramatic surge in trading once news of Dell’s results filtered on to the web. (click chart to enlarge)
I’ve gone back to try to piece together the information flow on the day. This is not an easy task as some information is behind pay walls. But it’s interesting nonetheless to see how quickly information spreads on the web. I looked at message boards, StockTwits, Twitter, blogs and general web sources. Dell also provided information.
Here’s what I’ve learned:
- At 3:36pm: Bloomberg news reported information on Dell’s results to its subscribers.
- At 3:40pm: Trade The News, a service for traders, briefly reported the following headline on its homepage: “Dell Inc [DELL]. Reports Q2 $0.28 (ex $0.04 charge).” I assume someone at Trade The News discovered the information that Dell had inadvertently posted.
- At 3:49pm: StockTwits member G3trading was the first to publicly note the unusual trading in Dell’s stock at 3:49pm. A few minutes later he would add that Dell had released its results early, which it hadn’t yet done by way of a news release.
- Also at 3:49pm: StockTwits member Time-Decay also reported: “$DELL #’s out early?? It’s ripping on large volume. $$”
- At 3:51pm: Independent Trader Bob Byrne sent the following message on Twitter: “DELL Spiking…some rumor about earnings being released on the web site. TTN reported it”
- At 3:53pm, someone posted a message on the Dell Yahoo! Finance message board saying the earnings were good and the news was out.
- For the next few minutes, there were multiple comments in various places on the web until Dell issued its earnings release at 3:57pm.
I’ve highlighted some of the key items in the above list. There are many more, and all illustrate just how fast information can move across the web today, even if it starts out behind the pay walls of proprietary systems like Bloomberg.
A sample of some of the messages on StockTwits referring to abnormal action in Dell’s stock.
Of course, the clearest evidence shows up in the stock activity for Dell, which ended the day as one of the top 3 most-actives on the NASDAQ for the day. While a good portion of the stock trading activity is likely due to trading algorithms that respond to the order flow, that does detract from the fact that information spreads extremely quickly on today’s real-time web — even if someone just happens to stumble across unannounced news on a company website.
Had Dell pre-announced when and where investors could access the information on its website, I have no doubt that anyone who wanted it would have gotten it. Indeed, during my research I found the following comment by a professional trader on the Elite Trader forums in reaction to the Dell incident:
It’s not as amazing as you might think. Earnings are due at 4pm. The fastest place to get the actual press release is from the website. Headlines tend to come out on newswires, but the press release is what you want. All conference call participants are connected via the website. A webcast with slideshow is how conference calls are done now.
Most ‘professional’ traders are doing away with Bloomberg. Its cost of $2600/month with entitlements no longer substantiates its use or its value added. There are much better charting services – theirs is outdated, company doc’s are available on Edgar thru Yahoo Finance, we all use AIM instead of Bloom IM, they dropped their ECN last week BTRD because of lack of use. Mike Bloomberg is worth $8bil now, you’d think he would lower the price to save his company and employees?
Many of us spend on services like: Briefing.com, Fly On The Wall, Tradethenews, etc… These services report news, rumors, estimates etc… -and scour websites ‘hitting refresh’ to give traders an edge. They are the ones that reported to all of us what happened on Dell’s website. FYI.
In future, I think Dell could, with some technology improvements, stop using paid newswire services like Business Wire and simply announce earnings exclusively on its website. Pre-announcing earnings release times and then posting news at a disclosed URL on the company’s website will also help to quell growing accusations of insider trading and unfair disclosure by investors who feel that some investors are consistently getting information ahead of others, which they are in many cases.
Lesson 2. Good content management and time stamping are vital to demonstrate compliance
I don’t have any special insight into Dell’s corporate disclosure systems. Nor can I say that a lack of a good content management system contributed to their accidental release of market moving facts. But you don’t need to be on the inside to see that they haven’t nailed down their disclosure controls.
Time stamping, or the inadequacy or lack therefore, is one area where poor web disclosure controls are obvious to anyone who cares to look. I mentioned time stamping a few months ago when I pointed out that Thomson Reuters RSS feeds on its clients’ IR websites don’t have accurate time stamps. Thomson Reuters still hasn’t fixed its feeds.
Now Dell has the same problem. Most of the coverage seems to suggest that Dell posted earnings information in error shortly before 3:40pm ET, which is when the stock started to ratchet higher. But that might not be the case.
The time stamps on Dell’s web content suggest, but don’t necessarily prove, that the information was public for almost 15 hours before the market began reacting to the information.
According to the timestamp on the Dell Shares blog’s RSS feed, the company posted an item summarizing the quarter’s results and announcing the availability of a video interview with CFO Brian Gladden at 17:16:00 GMT or 12:16pm ET. The time stamp on the blog post itself is 1:16pm, which is something I’m at a loss to explain.
Since the video interview with Gladden was posted using YouTube, I also looked at the feed for Dell’s YouTube channel to see what time the video was published. The feed shows the video was first published at 19:37:32 GMT or 2:37pm ET.
It gets even more complicated because the main RSS feed on Dell’s investor relations website shows three items disclosing information about the results were published at 1:00am EST on the day of the results release – almost 15 hours before the market began reacting to the news (see screenshot below).
So was the earnings information exposed on the web for much longer than originally thought? Quite possibly. I asked Robert Williams, Dell’s IR director, when the information was mistakenly posted online and he would only tell me when the information was distributed on Bloomberg.
The fact is the time stamps on Dell’s website, blog, and on YouTube all suggest that the information was available many hours before the news broke on Bloomberg. But those time stamps don’t seem to be reliable.
In situations like these, time stamps should be there to provide clarity. They are one of the most basic things you have to pay attention to when using your website for disclosure. Inaccurate time stamping of content undermines your credibility when things go wrong because they provide evidence of lax disclosure controls.
To be clear, Dell is far from alone in this respect and may actually be one of the more clued-in companies. The vast majority of companies don’t have the tools they need to use their websites for disclosure, and those that do often are not knowledgeable enough to know how to use them properly.
If you are going to use your website for disclosure, there is no excuse for not investing in a good content management system that provides a reliable audit trail, scheduling and versioning. And there’s no excuse for not making sure your staff appreciates the importance of small details like time stamps. Anything less is reckless.
Lesson 3. A full-time IR website manager is no longer a luxury
Three years ago this month, I said having a dedicated internal IR website manager was a prerequisite for companies to be able to effectively use the web in their IR and shareholder outreach programs. That statement, which I’ve repeated regularly since, went over like a lead balloon.
But it’s the truth, and I honestly believe that any large, well-followed company that doesn’t have this role in its IR department is taking unnecessary risks with its reputation and exposing itself to serious sanctions should things go awry.
If you don’t think managing an investor relations website is a full-time job, consider these few facts:
- Regulators, particularly the SEC, are putting greater emphasis on website disclosure. The area is becoming increasingly complex with a wide variety of rules and interpretations that impact your website. These include corporate governance, Reg. FD, Reg. G, XBRL, e-proxy, and the SEC’s interpretive guidance for corporate websites. In general, regulators recognize the web’s important investor protection role and they will continue to push corporate websites to the forefront.
- Most analysts, investors and traders rely on the web for their information. And they have more online sources of information and opinion than ever before in the form of blogs, social networks and specialist communities. You need to know what information investors are getting and what they are saying about your company. And you need to be reaching out to them when they’re getting the wrong information.
- The web is the new telephone for millions of people today. It’s how they keep in touch with the people, institutions and communities that interest them. A company’s shareholders collectively make up a large, ready-made community. If you’re not using the same communications tools as them, then you may as well not exist. By now every IR department should have a presence on external social networks so that they can reach people where they gather online. You can’t do this without a dedicated internal web disclosure expert.
- The web is becoming an increasingly complex platform for communications. Developments like RSS, blogs, social networks, Twitter, XBRL, the semantic web, the mobile web and even virtual worlds offer huge potential to improve a company’s ability to raise its profile on the Street and to build stronger relationships with its existing stakeholders. To keep up with these changes and ensure that new technologies are adopted with due regard to important compliance and control issues is part of a full-time IR website manager’s job.
Our research has found that more IR departments are adding IR website manager positions to their staffs. These are still few and far between, but I expect that they will become commonplace over the next two to three years. Large companies cannot afford not to have this position in their IR departments, while smaller companies will hire outside website managers to do the work for them under strict supervision.