Wall Street's new darling

Professional financiers and individual investors use many measures to decide whether to back a company. Some stare at charts; others read annual reports or talk to senior management.

But increasingly, they're all getting the same message: IT is a key component of a company's value.

"What you are seeing is companies using supply-chain management and cost reduction because it is demonstrable to investors," says Peter Sealey, a professor of marketing at the University of California at Berkeley. That's because using IT to take two or three percentage points out of the cost structure of an auto plant or grocery store chain is something Wall Street analysts understand, he says.

Other companies are following suit. For example, major airlines are touting their technology investments in hopes of being rewarded with stock values similar to those of high-tech companies like Microsoft Corp., Sealey says. Other brick-and-mortar firms are showcasing their IT as a way of countering dot-coms. "Fortune 500 companies are looking at the incredible multiples these technology-driven companies command on Wall Street and saying, 'We own the assets. We want some of that, too,' " Sealey says.

But such IT showcasing represents a distinct about-face for nontechnology companies, which traditionally have been tight-lipped about their IT strategy and operations.

Fortune 500 companies used to view their IT information as proprietary, but with the success of companies such as Wal-Mart and General Electric, senior management teams now see IT as a part of the value story they must communicate, says one Silicon Valley venture capitalist. Wall Street analysts and investors now want to hear about e-business strategies and what companies are doing with IT to tighten relationships with trading partners, he says.

This emphasis could be a generational shift. "We have the first president of the U.S. with an MBA, and companies have managers who have grown up with technology. They understand the PC and how it changes productivity," says Sealey. "Heck, you even have Jack Welch, GE's CEO, telling Wall Street that IT is instrumental in creating value."

But William Mahoney, executive editor of Shareholder Value, a Philadelphia-based investment publication, says he sees corporate trumpeting of IT as part of an overall trend toward more informed investors. "The fact that nontech companies are focusing on technology isn't the issue. The whole notion here is to provide valuable information to the stock market in terms of what drives a company's value," Mahoney says. "The mind-set now is that the more the investment community knows about strategy and key programs - the value drivers - the better."

But playing up IT doesn't always work. "Growing top-line revenue and bottom-line earnings are what matter," he says. "Professional investors have pretty sophisticated methods for predicting a company's future results and aren't moved by billboards or ads that broadcast a company's IT."

Yet despite IT's open-ended role in making firms more competitive, expect to hear more of them trumpeting their IT advances. After all, it beats talking about layoffs.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

More about General ElectricMicrosoftWall StreetWal-Mart

Show Comments