Considering an Investor Day? Ask Yourself 3 Basic Questions ...

The initiative du jour in investor relations circles entering 2024 is the investor day. Many companies are planning events for 2024 and we’re involved with quite a few ourselves. Not surprisingly, there’s a fresh batch of articles and “best practice” guides out there with tips for executing a successful investor day. That’s great - after all, investor day events are complex project management exercises – but, as a Wall Streeter observed to us recently, 80% of stocks go down following an investor day.

While that stat may be conjecture, it raises an important question: why are many investor days NOT successful? Much of the answer to this question starts at the moment the decision is made to plan one. Here we dive into some key things to think about before taking the leap.

Let’s start with some context - why are investor days popular entering 2024? For starters, we’re nearing the end of a challenging market cycle, which for many is an ideal moment to reset long-term guidance or target financial models. For others, there may be a belief that Wall Street doesn’t appreciate the investment thesis, or that said thesis has evolved meaningfully. Many industries have been out of favor during the pandemic and subsequent period of interest rate and economic volatility, so diving into upcoming catalysts and attractive forward positioning is a good way to gain fresh attention.

So now we know the motivations; let’s look at three key questions we encourage companies to ask themselves before pulling the trigger.

1. Why are we doing this, and why now?

One of the first principles of investor days is understanding that when you announce one, Wall Street expects that you know something good is coming. So, the stakes are raised from the moment the announcement hits the wires.

However, that might not be a company’s first consideration. These are some examples of rationale that we’ve heard from companies over the years:

• We’ve never done one
• We haven’t done one in a couple years
• We promised our board we’d do one every xx years and it’s time
• We’re undervalued
• People don’t appreciate our story
• Our competitor did one and it was well-received

A successful investor day starts with a very company-specific rationale. If you’re undervalued, why? Is there a true disconnect between the story today and how the Street views the company? Or perhaps you’ve done a transformative acquisition, or introduced new leadership with an updated vision. Or, as noted early in this article, perhaps you have outdated long-term targets and the Street is mis-modeling the company.

These are all good reasons, but timing matters just as much. What do the next four quarters look like? If we’re giving a longer-term set of targets or financial model, what are the building blocks that get us there? Are we confident we are going to deliver proof points against our strategy along that timeframe?

You’d be surprised how many companies wade into an investor day at the wrong time, for the wrong reasons. Our advice: time your event on the forefront of a positive inflection and give investors good reasons to get behind you.

Next …

2. What are investors expecting and can we deliver?

Companies undertaking an investor day are well-advised to have a deep understanding of what Wall Street really expects from them and be fully prepared to deliver on the expectations they set at the event.

There are all sorts of catalysts to jazz up an investor day: from new products to M&A to updated capital allocation plans. But for this discussion, let’s focus on financial outlook, which is what draws many investors to the event but also likely carries the highest beta of any information you present. The outlook can be presented on an annual or multi-year basis, or more generally as a “framework” for how to think about the company’s performance potential under a certain set of assumptions.

Most companies understand the model is a key component of most investor days, but some fall into the trap of providing expectations that haven’t been fully pressure-tested and are too aspirational. For more forecasting-challenged companies, it’s better to consider giving softer business targets around areas like TAM penetration or market share expansion, margin profiles, cost management and capital allocation priorities that can help analysts calculate the growth possibilities.

If you are giving numbers, the adage “underpromise and overdeliver” always applies, but also craft the discussion carefully to include higher level commentary on underlying assumptions and what the company can control vs. externalities. Don't just give the numbers; provide the building blocks that inform those numbers and help Wall Street measure progress. Done right, all of the necessary bread crumbs are laid out throughout the event in the management presentations. This fosters understanding of your objectives and builds confidence that your outlook is achievable/reasonable.

Further to these key goals, we typically recommend undertaking a targeted perception audit once you’ve announced your event. While most companies have a pretty good handle on investor sentiment, we adhere to the old Reaganism, “Trust, but verify.” Plus, incremental insights are useful in developing your agenda and messaging, and analysts and investors generally appreciate being consulted on a specific topic like an investor day - if they’re invested in your success, they want others to be as well.

Our advice: How you set expectations is critical. Failure to deliver on investor day promises is one the fastest ways to destroy management credibility for multiple years.

And our third important question:

3. What does success look like?

Management teams anxious to host an investor day often see the event as a solution for short-term pain points. It’s important to understand that an investor day has a long shelf life - the story you tell isn’t just a benchmark and point of reference for current Wall Street followers; it’s also a starting point for potential new investors to learn the story for quarters and years to come.

So, success should be visualized in a longer-term context. A common starting point is to think about what you want the headlines to be in the analyst reports published after the event, since these reports provide the first readout on where the company is heading. Looking out further, it’s about understanding how investors will see the company in six months, a year, three years, and how this translates to market position and valuation. If management teams have a clear view of where they aim to be and how they’ll get there, then now can be a very good time to host an investor day.

Of course, investors have to see that picture too for this to all work. So how you execute the event is critical. Among the most important components:

• Well-organized presentations that tell a cohesive story - not just a parade of business unit overviews, but presentations that convey strategic intent, opportunity and fit clearly within the broader corporate narrative;
• Achievable, well pressure-tested financial targets or framework, as highlighted above;
• A defensible framework for how the company thinks about capital allocation; after all your audience owns the company and you are stewards of their investment;
• Ample Q&A time;
• Accessibility to key execs beyond the CEO/CFO, to demonstrate bench strength and to show a united team; this may include informal gatherings before or after the event to allow time to interact
• At least a taste of longer-term vision/potential that gives Wall Street a sense of larger opportunity if you execute well in the next few years; and, finally,
• Lots of prep time for all execs, no matter how experienced, to ensure they tell a convincing story and are well-prepared for all the tough questions

Our advice: Investor days are about creating a roadmap to desired valuation and the belief that you can get there. So, take the long view.

We’ll wrap up with a few takeaways. Investor days are less about driving near-term stock price, and more about a platform to educate, advocate for the investment thesis and provide analysts the tools to value a company's potential. They set a benchmark to execute against and build your following over time. A poorly thought out, short-term rationale for the event, bad timing, and/or insufficiently developed financial narrative can hurt your credibility, and do lasting damage to your stock’s potential.