90 billion reasons for Apple to be more open

Shares in Apple rose $90bn in 24 hours when the firm took the unusual step of sharing more information than normal over the firm’s revenue in China. There is an important lesson in that event for reputation managers, in both investor relations and in analyst relations.

The stock hit $111.05 on the morning of August 23rd, up from $95.25. the previous morning. Arthur Kraft, a professor who taught me accounting at London Business School, has published research showing that stock market generally reward firms that are more open. He is one of the world’s leading experts on the effect of financial disclosures on share prices, and especially on voluntary disclosures. He and other professors have published widely-cited research which shows that firms that voluntarily release more information than needed can raise capital more favourably. Because increasing the amount of information available to all investors about a firm makes its shares more liquid, share prices are often higher.

Apple’s huge increase is an outstanding example of the financial impact of reporting. Certainly, more frequent reporting can have down-sides. However it is certainly the case, not only in the USA but also in developing markets, that firms with less disclosure are seen as being risker, and so investors make greater demands on them, lenders want higher interest rates, and the business is under more pressure.

Part of the myth around Apple has been that its secrecy does not come at a price or, indeed, that it would find no benefit from being more open. The $90bn rise shows that there is a price paid for less disclosure, and that Apple is actively weighing up those costs against the benefits.

The timing was astonishing for analyst relations managers, since the event happened ten days after a post on this website calling for Apple to be more open with analysts. Our friend Clive Longbottom disagreed, pointing to Apple’s success.

Certainly Apple’s commercial success is remarkable. Even so, Apple has been leaving money on the table. With a mature tech business like Apple, owning a stable market share, the difference between positive and negative analysts is relatively small: it would typically lift revenues around 0.65%. However, that would be over a billion dollars. Even if the gain was “only” $100 million, a professional AR programme would deliver excellent RoI for Apple. Normally, of course, it does not feel the pressure to do better, but the release of information about China shows that the firm can be flexible.

This week’s stock boost, hopefully, will be the carrot that Apple needs to be more open with industry analysts.

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