A case study in countering share price-damaging blog posts
Last week an anonymous blog post caused a mass exodus in shares of IDI, an NYSE-listed information solutions provider. The post appears to have been part of a co-ordinated effort to cripple the small cap’s stock, suggesting that IDI was worth $0, while at the time the stock traded for more than $11 a share.
The situation began when an anonymous blog post was published concurrently on a number of investor sites including ValueWalk and SeekingAlpha. It provided enough detail as to appear viable but was largely devoid of any facts.
Before anything could be done to address the short-seller’s allegations, the damage had been done. Once the post was published, the stock began heading lower and quickly gained momentum to the downside. Suddenly social media sites were full of people spreading the blogger’s serious allegations. Many of these people had never before discussed IDI online; unsurprisingly, many also disappeared only a day later.
For a short time the short-sellers were in control: shares continued lower, closing down 50 percent on July 21 to around $6 a share. But IDI stock soon stabilized, and began to recover with a vengeance: by the end of the week, it was almost back to pre-blog-post crisis levels.
So why did it stabilize and begin to recover so quickly?
Shortly after the anonymous blog post was published, IDI’s management team began to grapple with how to respond. It had many options. In the past, public companies have responded to online investor attacks in various ways.
Companies typically respond via press release, simply dismissing the allegations; obviously, the results of choosing that course of action vary. In many instances, a company’s share price has been known to languish for long periods of time when the firm chooses this option, so it’s not necessarily the best choice.
In this instance, IDI shares stabilized the very next morning. Here’s why: weeks previously, I interviewed the chairman of IDI for my blog where I interview executives of many of the companies held in my equity portfolio. I also typically contribute those blog posts to investor sites I value including TheStreet, ValueWalk, Benzinga, StockTwits and others.
While IDI management was deliberating how to respond to the anonymous blog post, I suggested a number of options, including having me conduct a follow-up interview to address the blog post’s key points.
After much discussion, IDI management chose to conduct another interview. In it, the CEO and chairman shredded the blog post’s key points one by one. It became quickly apparent that the blog post was nothing more than an effort to deceive investors into selling their stock regardless of price.
Once the interview was complete, I published it on my blog early the next day. I then sent it to TheStreet, ValueWalk and Benzinga in order to maximize exposure. Not long after, the stock began to stabilize and shortly thereafter started to recover.
Choosing to be interviewed rather than issuing a press release denouncing the allegations, hosting a special conference call or ignoring the blog post altogether was a unique approach that clearly demonstrated management’s openness and transparency. None of my questions were off-limits, and the results speak for themselves.
In conclusion, anonymous blog posts targeting stocks are published often because online investor platforms are willing to host them. The ease with which these blog posts can be disseminated and potentially negatively impact share prices means public companies need to be prepared to respond.
In this case, management chose to respond by conducting an interview with an independent party who just happens to be a fund manager. It appears to have been the right decision. It will be fascinating to see whether other companies follow this model.
Ezra Marbach, one of the core group who built SeekingAlpha.com, is a fund manager focused on Chinese stocks traded on US exchanges. He can be found blogging at ezramarbach.blogspot.com
