A storm in a pint glass
In these 'reactionary times', how do you navigate your business through a storm of knee-jerk controversy and prevent massive losses?
Welcome to The Data Room from The huuman layer - a monthly(ish) deep-dive into the data, facts and theory that drives the business economy.
Each time there’s any kind of controversy you inevitably see a headline like “Apple’s $8 Billion Screw Up” or “Disney’s $4 Billion problem” or “Samsung’s $240 Quintillion Supply Crisis” (I made the last one up). Usually some of the laziest and most sensationalist reporting that happens is in the business press. Whenever I see a headline like this I imagine some clickbait writer rolling out of bed, gleefully logging into Yahoo Finance, selecting a date range that fits their agenda and calling it a day. I’m not saying the news cycle doesn’t affect stock prices - that would be stupid - I’m just saying that if you take a multi-billion dollar company that has a 2-5% fluctuation in value, then of course it’s going to amount to billions of dollars of profit and loss. Every single person who’s read anything business related in the past 3 years tacitly knows that we’re in a period of high market volatility – a large company’s valuation will move 3% on any given Tuesday. You never see headlines that amount to “Toyota’s 400 Million Mistake: Because I Decided To Bike To Work Today” or “Ikea’s Multi-Billion Blunder: Because My Neighbour Picked Up A Used Couch Off The Street Triggering Mass-Sell-off.”
A-B Inbev’s recent hiring of Dylan Mulvaney, a notable trans rights activist, as the lead on a new Ad campaign, has picked up some vitriol. Here’s a “go woke, go broke” style headline that has a case of schadenfreude in claiming the stock is suffering a $5 billion loss directly due to this event alone. Some ‘more vocal detractors’ went on to start a boycott of Bud Light - because they came down with such a severe case of transphobia that the only reasonable course of action was to shoot cases of beer and call in bomb threats. In response, the CEO of Anheuser-Busch penned one of the most meaningless press releases ever written. Now - I’m absolutely certain that this boycott has temporarily affected their stock price, no argument there – but honestly: so what? It’s a drop in the bucket that is barely noticeable when you compare it to the last year of A-B Inbev financials - let alone the last 5 years. As soon as you take a bigger picture view, these headlines generally become unremarkable, if not inconsequential, like a storm in…a pint glass.
From April 11th-13th, the period of the aforementioned Ad campaign, A-B Inbev saw their dial move -4.37% - pretty dramatic, right? Well that’s nothing compared to the scandal they faced just a month earlier from March 9th-11th where the market cap moved -4.87%, which is, relatively speaking, millions of dollars more.
So what exactly was the scandal in March? The one that was even bigger and more financially disastrous than the one written about in the NY Post in April? Nothing. Absolutely nothing. It was just a normal day at the office.
Let’s look at Nike. They’ve got that new Air movie to contend with, so they’re in the news a lot right now - and historically they’re no stranger to controversy. Which is to say that Nike, of all the global brands out there, in very much in the public / culture domain and pretty outspoken. Remember, if you will, the Fall of 2018 - people were literally lighting their Nike’s on fire in outrage over former NFL player Colin Kapernick’s sponsorship and campaign - the athlete who had the audacity to ‘take the knee’ in public. There was a storm of articles and think pieces that came out in wake of these events, many claiming enormous financial damage to Nike Inc. Take a look at this graph and see if you can pinpoint exactly when this “Nike shares fell nearly four per cent” newsworthy headline happened.
Now, there are counterarguments. You can do things in business which are so damaging that the effects can hang around longer term. There are loads of companies that have opted to voice their dubious opinions and soured their reputation because of it. Meta’s initial reaction to the Cambridge Analytica scandal sowed a seed of distrust in their platform that they are - still to this day - having trouble extricating. Even though their valuation went on to drastically rise - then fall again - the conversations have shifted from ‘damaging democracy’ to Meta’s outsized impact on the way the world communicates, to the dangers of Meta’s general blundering in the broader social fabric of the world (and the Metaverse). Balenciaga’s ridiculous misstep seems so egregious that they’ve lost out on a major spokesperson or two – and that really counts when you’re in one of the most fickle industries on the planet. But now everyone is talking about Balenciaga Harry Potter memes, so maybe the cycle has shifted again. I’m not even going to bother linking it, but we all know that Adidas executives have been loosing sleep for the past 6 months - due to all that Kanye-induced chaos. Sometimes you can get mixed up in things so toxic that the smell lingers and begins to inflict irreparable brand damage.
But even then, when you take a step back, you’ll notice that the big, bad market forces that drive stock prices usually don’t take these culture war events into much consideration. In many cases they don’t even register. Google Finance has this cool (if you’re a nerd) feature that shows how headline from “key events” moved stock prices of major companies. When you take a look at a company like Disney - that have recently embroiled themselves in pro-LGBTQ+ policy in Florida, you’ll still end up seeing the same few screaming-knee-jerk headlines associated with ‘stock losses’. But the reality is that meaningful increases or decreases in the value of their stock are tied to events like supply chain issues, sales performance, labour issues and C-suite hiring and firing - these are the events that ultimately move the needle. Not panic around ‘wokeness’. True, you can say that culture scandals result in the increase/decrease of consumer sales and ultimately that hits company performance - but I don’t think it’s that simple. We can all think of one, looming, major example of a business owner who just can’t stop failing upward, who seems to feed off vitriol and transform it into a specific company that has delighted in causing those holding options in it to lose their shirts.
Anyway - back to Bud Lite. Let’s get into some actual numbers so we’re not just talking conjecture. In the last year A-B Inbev’s stock price has fluctuated from $44.51 to $67.09, and, since April 12th when the NY Post article was written, increased its value overall by 4.09%. For a company with $58 billion in annual revenue and $6 billion in net income existing in a period with high volatility, this fluctuation seems completely… unremarkable. In fact it’s entirely uncontroversial and boring.
See, there are only two kinds of companies that thrive on reactionary movements related to scandals in the business world - hedge funds powered by people who mine weakness living, and media companies who dream up a great headline for $ clicks. For the vast majority of business owners, investors and shareholders, these kinds of topics hold no value. When these multi-billion dollar companies are seemingly ousted or put on a pedestal every other week, it doesn’t serve as a tangible lesson in entrepreneurship. The business world moves on. The market is simply waiting for the next earnings call. Reactionary moments instead tend to cause a short term swell of outrage where a small number of people lose their shirts…or shoes…or the beers that they’ve already paid for.
The lesson, it seems, is that for the majority of businesses, being aligned to meaningful values doesn’t hurt in the long run and can actually improve profits, retain staff and generally be a ‘good thing’. So worry less about accidentaly creating something reactionary and worry more about the bigger market perspective.
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