Run the Numbers
Financial Storytelling Can Move Markets As Much as Results – Morgan Stanley Exec Explains
Podcast summary created with Snipd AI
Quick takeaways
- Financial storytelling is essential to investor relations, emphasizing that a compelling narrative can enhance market perceptions as much as strong financial results.
- CFOs play a critical role in managing investor expectations by balancing realistic guidance with long-term goals, ensuring alignment between corporate vision and market confidence.
- Maintaining consistency in key metrics and strategic messaging builds trust with investors, helping companies effectively communicate their health and growth potential amidst change.
Deep dives
The Importance of Repositioning in a Changing Market
In today's fast-paced market, companies must adapt regularly, ideally every three to five years, to keep up with evolving technology and consumer demands. Failing to reposition can risk a company's relevance and disrupt its operations. The discussion emphasizes that companies can benefit from self-disruption, as it encourages innovation and potentially leads to new growth opportunities. Acknowledging the need for continual reassessment allows organizations to remain competitive and aligned with market trends.
Financial Storytelling: Engaging Investors
Financial storytelling is a crucial component of effective investor relations, where both the numbers and the narrative must resonate with potential investors. A strong narrative can captivate the market just as much as impressive financial results. Successful CFOs are adept at crafting compelling stories that highlight their company's vision, year after year. For example, CrowdStrike's evolution from a single product company to a comprehensive platform illustrates how strategic messaging can enhance investor confidence and perceptions of long-term growth.
Navigating Transparency and Disclosure Challenges
The right balance of transparency in financial disclosures can build trust with investors; however, it also poses challenges. Companies must evaluate which metrics remain relevant as they scale and be prepared to retire metrics that no longer serve their narrative effectively. For instance, transitioning metrics such as customer counts becomes complicated when targeting larger clients or partners. Moreover, a strategic approach to retiring certain disclosures can help maintain investor confidence while continuing to provide a clear picture of growth potential.
CFO’s Role in Setting Expectations
A CFO’s ability to manage expectations effectively distinguishes successful companies in investor communications. Setting realistic, achievable guidance while tying it back to long-term goals ensures that both the company and its investors remain aligned. Good CFOs engage with different departments to gain insights into market conditions, ultimately leading to more informed guidance. This proactive management of investor expectations helps mitigate investor dissatisfaction during slower growth periods while reinforcing confidence in the company's future prospects.
Consistency in Metrics and Messaging
Maintaining consistency in key metrics and messaging is vital for companies aiming to instill confidence in investors. As businesses shift to new models or strategies, they should focus on a few pivotal metrics that convey corporate health effectively. Companies may benefit from routinely disclosing critical indicators, such as ARR and net retention rates, while limiting the introduction of new metrics that could confuse stakeholders. This disciplined approach to communication not only builds trust but also reinforces a company's strategic direction amid the evolving landscape.
Irrespective of the numbers, financial storytelling and strategic communication play a massive role in influencing market perceptions. Hamza Fodderwala, Executive Director at Morgan Stanley, joins CJ to discuss the critical role of CFOs in shaping and communicating a company's financial story. Hamza explains the role of storytelling in driving stocks, the significance of aligning company narratives with prevailing market themes, the metrics that software investor analysts do and don’t want to see, the delicate balance of transparency in financial disclosures, and the art and science of giving good guidance. Hear how to balance long-term thinking with short-term market pressures and whether you should focus on managing expectations or results.
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LINKS:
Hamza Fodderwala on LinkedIn: https://www.linkedin.com/in/hamza-fodderwala-66997526/
Morgan Stanley:
https://www.morganstanley.com/
CJ on X (@cjgustafson222): https://x.com/cjgustafson222
Mostly metrics:
http://mostlymetrics.com
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TIMESTAMPS:
(00:00) Preview and Intro
(02:03) Sponsor – NetSuite | Planful | Subscript
(05:54) Sell-Side” Versus “Buy-Side”
(07:34) Some of the Companies Hamza Covers
(08:23) The Role of Storytelling in Driving Stocks
(12:29) How CrowdStrike Turned Its Investor Narrative Around
(16:09) Sponsor – Rippling Spend | Vanta | Tropic
(20:11) What Sets Good CFOs Apart When It Comes to Storytelling
(23:57) The Metrics That Software Investor Analysts Want To See
(25:10) Does a CFO Need To Understand the Underlying Technology
(26:14) How Often a Company Can or Should Shift Its Narrative
(28:14) How To Retire a Metric Gracefully
(33:29) The Art and Science Behind Giving Good Guidance
(37:29) Metrics That Can Be Retired
(39:25) Separating Business Fluctuations From the Broader Economy
(42:57) Long-Term Thinking Versus Market Pressures
(46:33) Managing Expectations Versus Managing Results
(47:52) An Example of Where the Market Misread a Company’s Results
(50:01) Hamza’s Most Memorable Earnings Call
(51:52) Investor Days: Net Positive or Neutral
(54:00) The Buzzword Hamza Would Ban From Earning Calls
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