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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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Facebook: Comedy or tragedy?

C. HUYGENS - Wednesday, March 05, 2014
Janus, the Roman god of transitions, is often depicted with two faces and is known to many through the theater masks of comedy and tragedy. Janus is said to have presided over all beginnings and transitions, whether abstract or concrete, sacred or profane. For 21st century cyber-religionists, Janus is the god of Facebook. After paying $19billion for What's App, a messaging service with 450 million users (because it's free) with no significant revenue model, hope and prayer are likely more prominent elements of Facebook management's daily routine.

The reputational value metrics, shown below, reflect the expectations of everyone else. The good news for What's App beneficiaries is that the 81st percentile ranking for the Reputation Premium among 137 peers indicates plenty of upside potential in the equity used to fund the deal; the bad news is that other measures suggest that potential is less likely to manifest over the long-haul. The 13.1% value for the Consensus Trend, CT, for example, is usually a leading indicator of major equity market changes. So while the sector Internet Software/Services sector has been unusually volatile, and great upside can be a volatile event, the high CT value is most critically an indication of stakeholder uncertainty, and that always translates into a bumpy ride for the short-term.

For more background on the Consensiv reputation controls, click here. To view the December 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here. Last, to read more about how reputational value is linked to stakeholder expectations and enterprise value, read, Reputation Stock Price and You: Why the market rewards some companies and punishes others (Apress, 2012) (click here).

Nasdaq OMX: This too shall pass

C. HUYGENS - Saturday, May 26, 2012
The Facebook Fiasco (FB) has tarnished many a reputation. But only one firm at ground zero experienced a failure of a business process that is core to its reputation. The NASDAQ OMX Group, Inc., (NDAQ) the holding company of The Nasdaq Stock Market, Inc., is the world’s largest exchange company. By its own description, it’s a technology company. “We are not just financial types that sell technology. We’re market-savvy technologists that know first-hand the business challenges technology is supposed to solve. “ That technology failed dramatically Friday, 18 May. The punters want to know: was this a reputational event; is this time to short NDAQ; and while we are at it, how does this rank relative to what JPMorgan Chase is experiencing?

On first pass, the relative drop in the reputation ranking of NDAQ from the 80th to the 71st percentile among its 80 peers seems unambiguously less severe than the drop in the ranking of JPMorgan Chase (JPM) among the same peers earlier this month from the 79th to the 52nd percentile (although it has already started recovering and is now at the 54th percentile (Steel City Re Corporate Reputation Ranking time series below).

However, looking at both the one and three year time series for the two companies, the historic reputation ranking (above) and reputation value metric volatility (below) shows a more nuanced comparison. All other things being equal, JPMorgan Chase is a firm with a much more volatile reputation. In the loss gate chart for NDAQ below, the gates 1-5 show the reputational value metrics for 1, 1.5, 2, 2.5, and 3 standard deviations of the two-year historic mean. The tight clustering of the five loss gates for NDAQ, with loss gate 3 (2 standard deviations) centered on 0.4 GU reflects a much less volatile reputational pattern than JPM where loss gate 3 is centered about 0.47 GU. Even so, the reputation value metrics for both firms is still wide of the mark for even one standard deviation drop from the 2-year historic mean.

There's more to consider. In the multi-variable time series charts below illustrating the 90-day exponentially weighted moving average of the reputational metric volatilty, and now looking at the data with custom peer groups, the volatility of NDAQ's metrics are less sensitive to the volatility of the CBOE VIX, or "fear index" than than are JPM's metrics. Which among other things suggests that at least some of JPM's reputational metric depression may be attributable to the background uncertainty associated with Greece and the Euro.

Returning last to basic reputational metrics, the vital signs column charts and time-series charts provide an interesting quantitative perspective for all of the current media chatter about these two firms.  Relative to the 80 firms in the Finance peer group, the historic volatility of NDAQ is in the 28th percentile and is climbing with the most recent value at the 46th percentile. Its current reputational rank is in the top quartile, return on equity in the third quartile, and projected reputational stability is just above median. JPM's historic reputational volatility, notwithstanding the great swings seen above, is still in the lowest quartile among the custom peer group of 258 financial service sector firms; and the current volatility only moves JPM's volatility to the high end of the third quartile.

These data indicate that neither reputational event affecting the two companies was particularly severe. The data further suggest that there is significant resilience in the reputation of NDAQ that should be able to absorb the impact of the high profile technological glitch; and that the most recent event to surprise JPM is already resolving from a reputational perspective.

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