Monthly Archives: February 2016

DON’T LET BAD FORECASTS RUIN YOUR STOCK

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Tableau’s stock was down over 54% with over $2B in market cap erosion over two trading sessions after announcing results. LinkedIn suffered a similar loss with over $10B erosion in market cap erosion a day after announcing their latest results. This fall was mainly attributable to lower than expected guidance. Bad guidance can spell doomsday for a stock which leads to a fundamental question about a company’s long term forecasting process. If a company has built a robust long term forecasting system, they should be able to see early signs of weakness in revenue and put mitigation strategies to increase revenues or reduce costs. Guidance and messaging to the markets can be tuned if companies have visibility into such long term forecasts.

This brings us to the fundamental issue of companies not having intelligent systems and tools to get clear visibility into the future. Most companies focus on short term forecasts for the immediate quarter and have some insight into out quarters for the current fiscal year. Their view beyond the current fiscal year is very limited and this can blindside many companies into realizing they have a big hole to cover when they get to the end of their fiscal year