There is an argument to be made that the “market value” of a company is some sort of fiction that transforms the whole stock-based valuation in a constant self-sustaining bubble. In the case of technology companies the situation is sometimes quite clear and easier to understand. If you take a company that has a market value of 128 billion dollars and gives a net profit of 4.83 billion dollars, forgetting the business that is buying and selling the stock, you would be crazy to spend such a huge amount of money to get 3.77% annual return. But the market value of the company represents the value that investors are willing to pay with the expectation that the value will increase (quite more than 3.77%) and sell it at a profit. And, as far as the company has a proper business model and some profits that allow it to expand and recruit the best talents, the market value is justified because other people will want to buy the stocks too and the original buyer will see the price of his/her stocks raising, so, while to use 128 billion dollars to buy Google and live out of its net profits would be crazy, to use several thousands, millions or billions to buy its stock is not crazy and it may even be advisable. It is easy to use the example of Google because it has a clear business model that deliver profits consistently and because has not given any reasons to investors to doubt about the future value of their stock, but the idea of the expectations-bubble applies to most technology companies and not all may have the same solidity. Sometimes their business model is good and solid and some even have products to sell and some “hardware” that make part of their valuation, but not paying proper attention to legal issues, even those looking small, may prove fatal.
The issue of the relation between companies’ valuation and legal issues refers to institutional investors, hedge funds and other financial-world wild-animals. Those investors normally use other-people’s money and, although there are big disclaimers telling to that “other-people” that the value of the investment may go either up or down, when it goes down pronouncedly the real owners of the money start to ask questions, and when the losses are substantial (big, huge), those owners are willing to (and normally do) go to court to recover some of the losses they have suffered, allegedly due to the lack of care of the investors. During credit crunches and stock markets meltdowns that type of lawsuits become far too common, which make institutional investors to run away from any stock belonging to a company that even smell of having a legal problem, not because that stock in particular would be the cause of the losses in the portfolio (the losses may be purely due to market conditions and unrelated to the stocks in the fund) but because once the losses have accrued the owners of the money would look for any potential pitfall to take the fund’s administrators to court. Accordingly, the impact that a legal issue may have on the valuation of a company does not relate to the monetary value of the damages that the company may have to pay in case of loosing a lawsuit, but it relates to investors shying away from it due to their need to be protected in case of lawsuits. Thus, in uncertain markets funds administrator give (or should give) as much importance to the analysis of the legal issues surrounding their investments as they give to the financial and economic ones, and become very conservative.
In that context, it seems surprising when big, prestigious and good companies rush products to the market creating the possibility of putting themselves in situations that, due to the particular characteristics of their market valuation and the current financial environment, can hurt them in a way that no product-launch delay could and, on top of that, to not take proper measures to ensure that, if a problem occurs, the situation can be controlled and isolated promptly.
From the past 16 August the new Blackberry Bold is available in
Leaving apart the issues with the performance of the phone itself, the battery issue is not a minor one. Batteries not only get discharged early, but they also catch fire and explode, so you would imagine that if you put a new product in the market you are going to make sure that things like that cannot happen and, also, to have in place some sort of early warning system and costumer service to avoid any serious consequence of a failure, which through the mechanism briefly described before can have a severe impact on the valuation and access to finance of your company…delaying a product could be costly but facing a lawsuit for product liability in times of the crunch can cost far far more, so companies that depend on expectation to keep their valuation steady, like most technological companies, in this uncertain times should pay more attention to the lawyers than the financiers and marketers to keep their finances healthy.