Financial PR (Mar2014 Intake): Assignment 1

Final Word Count: 504

This essay seeks to summarize and discuss the financial activities of a company and how it affects a company’s public relations.

Hulbert (2014) discusses the drop in shares of Twitter in the duration of the next four years that is based on a scale that tracks growth of sales. It indicated that there would be more struggles in store for Twitter’s financial future. The article also discusses Facebook’s finances in brief.  

According to the Hulbert (2014), Twitter’s shares have gone down 45% from recent highs while Facebook’s shares are down 19%. Grounded on a common evaluation formula that predicts where freshly public stocks will be trading five years after their initial public offerings, Mark Hulbert, the founder and editor of Hulbert Financial Digest, concluded that Twitter and Facebook may be in for more bad news. The sales-based formula that was used in the assessment was constructed on the basis of how fast a company’s income will develop over its first five years as a public listed corporation and what its price/sales ratio will be. It was stated in the article that spokespersons from both corporations failed to comment on the results of the estimates, which suggested that Twitter and Facebook shares would be much lower than where the messaging services currently trade.

The article referred to previous research on speed of sales growth of newly public companies carried out by Jay Ritter, a finance professor at the University of Florida and Martin Kenney and Donald Patton, both from University of California, Davis. It was from Ritter’s records that Twitter’s stock in November 2018 and Facebook’s stock in May 2017 were calculated. Based on the results of possible 45% and 50% drops in stocks for the companies respectively, Ritter stated that it would not be unmanageable for them to avoid that outcome. According to him, Twitter, along with social network giant Facebook would either have to increase their sales quicker than average or increase their price/sales ratio. While both situations are possible, they also pose as risky acts.

Hulbert (2014) suggests that investors may instead gamble on high-tech companies that have more practical evaluations, as the Internet sector is more likely to change unpredictably than the overall stock market in comparison.

Based on the article, it seems to be that investors are now more cautious or more rational toward what they are buying. In my opinion, both companies did not put enough emphasis on their sales strategies. While it is inherently important and smart that they invest in their future growth now, they are simultaneously sacrificing their earnings, which in the long run may not be beneficial to the finances of both corporations. From a public relations angle, as the spokespersons for Twitter and Facebook refused to comment on the findings, there is a risk of both companies’ reputations being scarred. From the article, it is evident that both corporations need to be able to prove two things to investors; that they can dramatically improve communications with advertisers and they can increase engagements with users.

Reference list:

1. Hulbert, M 2014, ‘Twitter shares four years from today – down 45%?’, Market Watch, 12 April, viewed 13 April 2014, http://www.marketwatch.com/story/twitter-shares-four-years-from-today-down-45-2014-04-12.