Who is providing guidance?

Equicom recently completed a study of the guidance practices of every TSX-listed technology company above $20 million in market capitalization.  A total of 59 issuers were included.

Highlights of the study:

  • 22 of the 59 tech companies (37%) provide at least some forward-looking guidance – defined as specific, quantifiable projections.
  • 21 of these 22 companies offer revenue guidance, 12 guide on earnings, 5 guide on gross margins, 5 guide on EBITDA, and 10 provide guidance on some other measure.
  • 13 provide annual guidance, 7 quarterly, and 2 both annual and quarterly.
  • Among the 15 companies above $300 million in market cap, 60% provide guidance.  Below $300 million, only 30% of the 44 companies do so.
  • 77% (10 of 13) of those whose shares are also listed on NASDAQ or NYSE provide guidance, compared to 33% of the remaining issuers.

The choice of whether or not to provide guidance is one of the most significant investor relations decisions a public company makes, and it should not be taken lightly.  Guidance can improve visibility and transparency, but companies who provide it also take on new potential risks and disclosure obligations.

Whether it makes sense to provide guidance depends on the unique circumstances of each company.  Factors that may influence the decision include the following:

  • How much visibility do you have into your upcoming results?  Can you make projections with a reasonable degree of confidence?
  • How many analysts are covering you?  Are their estimates reasonable?  Are some of the estimates widely divergent?
  • Do you have reason to believe investor expectations of your future performance are significantly different than what you are likely to achieve?
  • Are your peers (i.e. competitors, or close comparables) providing guidance?  Investors could reach negative conclusions if it appears you have less visibility into your results than your peers do.

For technology issuers, benchmarking against other companies in the sector provides a useful starting point for the guidance discussion.

To access the full report, please click here.

 

- Jeff Codispodi, Vice President, Technology Practice