Miscrostrategy IR crisis hits home

VIENNA, VA: Now that Microstrategy’s stock has leveled off after last week’s nosedive, the PR team has the unenviable task of sorting through the rubble of the company’s reputation.

VIENNA, VA: Now that Microstrategy’s stock has leveled off after last week’s nosedive, the PR team has the unenviable task of sorting through the rubble of the company’s reputation.

VIENNA, VA: Now that Microstrategy’s stock has leveled off after

last week’s nosedive, the PR team has the unenviable task of sorting

through the rubble of the company’s reputation.



Shares of Microstrategy, a data-mining software company, plummeted by

more than 50% last Monday on the heels of a major revenue revision. The

company had been counting much of its revenue from complex contracts up

front, using accounting methods that the SEC frowns upon. The stock,

which hit a high of dollars 333 only weeks ago, promptly careened down

to dollars 86.75, slicing its market capitalization from dollars 20.4

billion to dollars 7.8 billion.



PR and IR pros polled by PRWeek didn’t place the blame on

Microstrategy’s PR staff - which, they suggested, was probably kept in

the dark by senior management - and instead faulted the company’s

auditors, CFO and analysts.



’These matters are the essence of IR,’ said Patrick Gallagher, SVP at

Edward Howard & Co. ’But in most companies, the IR officers are probably

not sitting in when the critical decisions are made. They are the ones

who have to pick up the pieces after the credibility has been

destroyed.’



’Issues of revenue recognition fall within the realm of the CFO,’ said

GCI Group EVP Aaron Kwittken, while Shandwick president and chief

reputation officer Gary Thompson added, ’Their PR chief probably didn’t

realize the company had done something wrong.’



Microstrategy PR director Michael Quint declined to comment. The company

does not have a PR or IR agency of record.



Some IR sources said it’s not uncommon for auditors to restate numbers,

and that Microstrategy only got nailed because of its status as a

high-flying Internet firm. ’Wall Street takes everything to an extreme,’

said one source. ’Its valuation was way too high. Now, it’s back down to

where it should be. It’s not a PR or IR issue.’



Although opinions varied as to who made the mess, the job of cleaning it

up falls squarely upon the Microstrategy PR team, which has to work fast

to restore credibility. ’Their biggest challenge is the credibility gap

with the Street,’ said Kwittken. Thompson said the company’s reputation

will suffer as long as the story is in the news but predicted, ’That

won’t be too long.’



The revelations at Microstrategy come amid increasing SEC scrutiny of

shady accounting practices used by Internet firms to inflate

revenues.



A recent story in Fortune magazine concluded that some Internet

companies, desperate to maintain the appearance of momentum, have

created a context ’in which ethically dubious behavior can seem

normal.’





INDUSTRY WEIGHS IN



Thomas Laughran, EVP at The Investor Relations Company: ’The pressure is

on management to do whatever they can, quarter after quarter, to put up

the numbers the analysts are expecting.’ Patrick Gallagher, SVP at

Edward Howard & Co.: ’This highlights the cheerleading and nodding

approval of management that passes for securities analysis today.’



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