What Moves Markets: The Seven Hundred Million Dollar Man

Last week we had our Analyst Day in New York City, which means that we met with a theater full of Wall Street financial analysts and explained our company to them. You can learn a lot about how Wall Street thinks by watching how our stock price changed during the different presentations. (You can watch it yourself here.)

The first four speakers described our strategy, why we have been winning recently, and why we believe we are very well positioned to take advantage of trends in the market like cloud computing and industry consolidation – Tom (our new CEO) on the big picture, me on our vision of data centers and clouds, Manish on our product strategy, and Rob on our sales strategy.

Finally, Steve Gomo, our Chief Financial Officer, gave projected financial results for the next two quarters. In particular, he showed a slide saying that by Q3, we expect to be back to our normal operating profit of 16%.

We tracked the stock ticker throughout the presentations, and here’s how Wall Street responded. After the four of us did our absolute best – two hours of details – to explain what we are doing and why we will win, the stock had moved a total of three cents. In the first ten minutes of Steve’s talk, the stock went up a dollar. It’s clear what matters to Wall Street. Never mind technology, long term strategy, or market position, what moves markets is short term earnings. (Not new news, of course, but this is a particularly graphic illustration.)

By the next day, the stock was up about two dollars. Perhaps the extra dollar came from the other four presentations, and it just took a while for the analysts to digest the details, but – realistically – that was probably Steve’s doing as well. Since we have 350 million shares, Steve’s short talk – maybe just that one slide – drove NetApp’s value up by seven hundred million dollars. If you look just at the first ten minutes of his talk, when Steve got the first dollar, he was increasing our market cap at the rate two billion dollars an hour. What power: mover of markets and creator of value. Steve Gomo, the seven hundred million dollar man!

And yet, when he got home from the meeting, late that night after a cross country flight, the first words Steve heard were: “Honey, I need you to take a look at this sink. The spray hose is leaking like crazy.” From star to plumber in six seconds.

Comments

[Sean Eby]

And indeed the locusts and the day traders descended upon thee. No value was henceforth created nor destroyed; merely transferred.

[random visitor]

If the overall market or even just technology moved for reasons unrelated to your firm your stock will move in synch too, so you can only presume an association after you've taken out the market from those movements

[Bob Daniel]

When I worked at Netapp I was always impressed by Steve Gomo. He has a unique ability to make complex accounting concepts simple and understandable.

[joe random]

Make sure he doesn't utter "irrational exuberance" the next time ;-)