MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Blackberry: The end is nigh

C. HUYGENS - Friday, August 30, 2013
Earlier this month, Huygens doubled down on his belief that Blackberry was doomed. The death knell is ringing, and it sounds like this. From Bloomberg, Aug 30, 2013, "Morgan Stanley (MS) is holding off on upgrading its employees to BlackBerry Ltd. (BB)’s newest smartphones and operating system because of concerns that the Canadian company may not back its platform long-term, according to two people with knowledge of the bank’s plans."

Blackberry, nee Research in Motion, is in the last stages of a full-blown reputational crisis. Such a crisis, as Huygens frequently declares, is the realization of reputation risk which is defined as the threat to enterprise value when myriad stakeholders perceive that corporate behavior violates their expectations. Morgan Stanley would expect Blackberry to support its platform long-term; it is now expecting that the company will be unable to do so.

As to last stages, as Huygens is formerly a deputy coroner of Los Angeles county, the situation is ad oculos.

Blackberry: No more children's games

C. HUYGENS - Wednesday, August 14, 2013
From time to time, Huygens has to turn his back on his alma mater, the great University of the great Chicago, and acknowledge that markets can be profoundly inefficient. Equity prices are often driven by emotion; reputational value metrics are usually driven by rational expectations of a diversity of stakeholders that by virtue of their heterogeneity, dampen the emotional noise.

Equity investor emotion manifests in frankly goofy stock prices. For example, writes Value Walk, “Netflix has had a hell of a run in 2013, up over 170% year-to-date on big earnings results and short squeezes...But that run for Netflix, Inc. (NASDAQ:NFLX) stock might end in tears, and soon.” Driving a stock price to 329 times earnings suggests that investors are acting on sentiment more than fundamentals.

Turning to Blackberry (BBRY), Huygens has long advocated laying out the cutlery. The reputational value metrics were unambiguous two years ago. Well BBRY had another stock burst after it renamed itself (adult version of peek-a-boo) but that's over now and directors are seriously talking like adults about selling off the assets. Here are the most recent Steel City Re reputational value metrics.

The current tally: current reputational value (RVM) volatility in the top quintile (88th percentile measuring in at a Consensus Trend above 11% - change is coming. Reputational ranking, the Reputation Premium, at the 19th percentile - low expectations (finally) after an irrationally optimistic run in the high 60's that fueled silly economic returns approaching 150%.



Blackberry: Bye bye

C. HUYGENS - Friday, February 15, 2013
Reputational value is the benefit of stakeholder confidence in a company's future narrative. With a nod to comedian Jeff Foxworthy, you may be having a reputational value crisis...if your former CEO dumps all of his shares at rock bottom prices.

In a regulatory filing yesterday, former Blackberry Co-Chief Executive Officer Jim Balsillie said that by the end of last year he had sold his entire stake in the company. Balsillie, who stepped down as CEO a year ago, owned about 26.8 million shares, or a roughly 5 percent stake in the company, as of Dec. 31, 2011.

Blackberry: A RIM by any other name

C. HUYGENS - Thursday, January 31, 2013
A magician's tradecraft, the art of deception, can transform mundane physical acts into wonders of amazement. Asking a moribund company's marketing department to do likewise is patently unreasonable. Research in Motion announced a name change to Blackberry (the company), and equity investors rewarded the obfuscatory act with another 8% loss in market cap at the close of markets yesterday. Perhaps they have another trick up their sleeve?

Turning to reputational value metrics from Steel City Re, the vital signs (top left) reflect a company struggling to make a comeback after a volatile (top percentile) past. Current RVM volatility (RVM is a non-financial measure of reputational value) is down to the 14th percentile relative to the 74-member Telecommunications Equipment peer group. The CRR, a measure of relative ranking, is in the 22nd percentile which reflects poorly on a $9.2 billion company; return on equity is median for the sector, but the time series chart just below the vital signs shows an equity spike and a sustained CRR drop suggesting equity investors may have been getting ahead of other stakeholders. Yesterday's price drop is keeping with that interpretation. The last of the five vital signs, forecast stability, is also in the lowest quartile but the directional markers are only slightly negative.

Collectively, these measures suggest that from a reputational value perspective, Blackberry, as the company is now called, has not quite bottomed out, but it is not expected to soar either. They also indicate, to the extent that reputation comprises confidence in a future behavior or outcome, that stakeholders as a group have little hope for a more compelling performance.

For more background on the relationships between reputation, value, corporate financials, and stock prices, read, Reputation, Stock Price and You: Why the market rewards some companies and punishes others.

Abercrombie and Fitch: 50 shades of reputation

C. HUYGENS - Thursday, November 08, 2012
Abercrombie and Fitch, the casual apparel retailer, established a reputation for innovative, sexy marketing. Reputation is an expectation that spurs stakeholder behavior. A&F Quarterly, the company’s catalog that featured photo shoots by fashion photographer Bruce Weber, was so racy that shoppers were required to prove they were over 18 years of age to buy them. It had a circulation of 1.2 million in 2002 and was branded ‘soft porn’ by critics.

Its marketing strategy, reports the Daily Mail (Abraham, 31 August 2012), appears to be failing to woo customers as effectively as they once did. In addition to 71 store closing in 2012, it expects to have closed nearly a quarter of its 1055 global stores by 2012. Sexy and vacuous is no longer innovative—in the US and Europe. Meanwhile, overseas in China and the Middle East, sexy is innovative. Sales are growing.

Were it only so simple for Research in Motion. The company that established a reputation for innovation in the smart phone arena—invented the genre as we know it—has slipped dramatically in the minds of its stakeholders. As discussed here and elsewhere, including the new book, Reputation Stock Price and You, it is simply no longer innovative. Catch up is a much harder game. Turning to the reputation metrics for both Abercrombie and Fitch (ANF) and Research in Motion (RIMM) from Steel City Re, the former is down in the dumps with upside potential, while the latter is similarly situated, but with a bleak future.

ANF's reputation rank (CRR) has been on a choppy ride down to the 44th percentile among its peer group and its ROE is in the 10th percentile. The many volatility measures, however, suggest a steady improvement in both rank (CRR) and reputational value (RVM). RIMM's reputation rank is in the 23rd percentile and its ROE is in the 12th percentile. However, its volatility measures forecast--actually, only hint--possibly a slight improvement.



Nokia: Trending to where?

C. HUYGENS - Thursday, April 12, 2012
In "Why RIM Lost Its Crew, Its Groove" (6 April), Richard S. Levick explains that the failure over at Research in Motion was due, in part, to their failure to engage their customers and understand their needs. Richard, who will be participating Friday 13 April in the Society's Mission Intangible Monthly Briefing on protecting reputation, knows his stuff. He contrasts RIM with Apple and Google, who may be no better at technology than RIM, but who are very good at understanding how their customers want to experience technology. Social media get a nod as being powerful enablers of engagement. We concur.

There's more to the story. Nokia, the European contender, doesn't even get an honorable mention.  Huygens is not expert at social media, but Huygens can measure reputation, and reputation in the technology sector is very sensitive to how stakeholder's perceive a firm for its innovation prowess. Having a big tent and ample data, we thought we would revisit Nokia after 14 months and see how they have evolved from a quantitative perspective. The trend is not promising if you are an equity investor.



Notwithstanding a few spikes above the median over the past year, and cutting to the chase, the bottom color chart shows in blue that Nokia's reputation ranking has sunk to a new low - the 13th percentile - among the 76 firms in the Telecommunications Equipment peer group. Its return on equity has followed a similarly dismal curve, in yellow, under performing the median of its peer group by 20%.

The upper charts provide more detail. Relative to its peer group, as reported in the chart labeled Vital Signs, Nokia's reputation has been all year long  -- up to last week -- exceptionally volatile ranking in the high 90th percentiles. The parity of current vs. historical volatility, and how that looks relative to Nokia's peers, is shown at top right.

While the trending is negative, it is not a stable trend. The Vital Signs report that reputational stability is in the 11th percentile while the middle charts show that the return on equity at the 26th percentile. This is high for the reputation ranking, all other things being equal. This could be viewed as either very good news, or bad news, depending on whether Nokia's price is felt to be ahead or behind its reputational metrics. So either a surprise rise, or another disappointing fall are just around the corner.

Hint: The RepuStars Variety Composite Equity Index calculated by Dow Jones Indexes is based on the thesis that although reputational value is usually fairly embedded in stock price, there are are arbitrage opportunities that can be exposed with reputational metrics. If we had to bet based on the above, we'd short NOK and predict the prices will drop from the 26th percentile to one closer to the rank's 13th percentile.

RIM Shot

C. HUYGENS - Friday, October 14, 2011
It is never good to stumble before your competitor rolls out a new product. Ever so much so when your competitor, Apple Inc., rolls out a new iPhone dubbed 4S the day before its iconic founder dies, and the phone acquires the moniker "4 Steve." In other words, this is not a good time to be Research in Motion (Nasdaq:RIMM).

The Globe and Mail (Oct 14, Babad) headlined the story this way: "Is Steve Jobs crowing in Heaven or RIM's week from hell?" Continuing the story, it notes "RIM is in what charitably might be called a rough patch. Its quarterly results disappointed investors, to put it mildly, the launch of its PlayBook tablet was weak, and there are questions dogging the Waterloo, Ont., group about its management structure. Then came what Queen’s University marketing professor John Pliniussen dubbed the "Blackout-Berry" as RIM reeled for three days this week to get its e-mail, instant message and Internet services back up and running for millions of BlackBerry users around the world."

The Street (Oct 12, Oran) more charitably stayed technical quoting company sources, "'Global disruptions in Research In Motion's service beginning earlier this week were caused by the breakdown of a core switch in Europe and the subsequent malfunction of its back-up system,' the BlackBerry maker said Wednesday in a press conference. These failures then resulted in a backlog of unsent messages which have caused service problems and disruptions for other RIM users around the world, including the U.S. and certain countries in South America, including Brazil and Argentina." But don't be lulled by the technical speak. When a technology company stumbles on a major service quality issue, its reputation takes a beating, its enterprise value falls precipitously (what else is going to go wrong?), and the sharks begin to circle.

Motley Fool
(Oct 14, Kawamoto) observed that "Fast-moving Jaguar Financial is breathing down the neck of Research In Motion (Nasdaq: RIMM), and if the BlackBerry maker isn't careful, it could see a dramatic change in its board of directors and potentially management as early as three months from now. Under Canadian securities laws, investors holding a 5% stake in a company -- either individually or as a group -- are allowed to call a special meeting, says Chris Makuch, vice president at proxy solicitation firm Georgeson. And once a formal letter is sent to a company requesting a special meeting, the clock starts ticking and the process takes roughly 80 days to complete, notes Makuch, who works in Georgeson's Canadian office."

How bad is it? Turning to the Steel City Re Corporate Reputation Index metrics, over the trailing twelve months since Steve Jobs declared war on RIM, the company's reputation index metrics have slipped from the 64th to the 46th percentile among the 70 components of the Telecommunications Equipment sector. The company's exponentially weighted moving average reputational metric volatility has stabilized at 42.6%. The trailing 12 week velocity is a miniscule 1% and the trailing 12-wee vector is 87.8%. Not surprisingly, the company is under performing the median of its peers by nearly 34%.


The sector is suffering the general tribulations of a volatile economy and is showing an general reputational decline. That provides little comfort to RIM which, as a major holder of intellectual property rights, could be valued on its breakup and licensing fee value. With the market cap component comprising intangible assets now representing only 40% relative to the peer group median of 60%, it appears equity investors are placing less value in the management of those assets.


The list of companies stumbling badly after a reputational crisis continues to grow. One could hope that a massive PR effort might help reverse the tide of adverse news. One would be wiser first to pay attention to the business processes (intangible assets) underpinning reputation.

It is said of war that it has no winners, only survivors. Research in Motion out survived Steve Jobs. It is not winning.

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