Contrarian Reporting: The Four Reasons Shareholder Letters Win with Investors

Writing shareholder letters is the strongest way to communicate your long-term narrative with investors. A letter runs circles around the status quo’s effectiveness in reporting quarterly results.

Yet few companies write shareholder letters. As one proxy, only 15% of the 71 software & SaaS companies issue quarterly shareholder letters* (link to our open-source analysis). You would think SaaS companies want to stand out from their peers in a hyper-competitive industry needing investor capital. Their disclosures say otherwise, surprising considering the software sector is an innovation engine transforming the economy. This low % of companies writing letters holds across other sectors as well.

The Shareholder Letter

So, what makes a shareholder letter superior? It has four qualities we love.

Here are best practices from the some of the best reporting contrarians writing shareholder letters:

1 - Easy to Understand: 

• Value Prop: The written word is the undisputed heavyweight champ for educating an audience. A letter lets you say what you mean in one centralized place (vs. the typical 3-4 earnings documents most companies produce). Also, it gives you the space to put any additional context (tables, charts, graphics) all in the same document vs. forcing your audience to digest information across multiple mediums (written, tables, audio, visual slides). And the written word is concise.

• Counterexample: Microsoft published seven documents (!) plus webcasted prepared remarks for its Q4’23 earnings. To be fair, the world’s 2nd largest market cap company wins awards for the quality of its disclosure. That said, the transcript ran over 5,000 words and required more than a half-hour to listen to. This volume & dispersion of content takes an experienced analyst hours to work through.

• Great examples: CLEAR & Samsara, both recent IPO companies, do excellent jobs covering strategy, results, and disclosures in a tidy package (both less than 14 pages). In the software space, Atlassian**, a Microsoft competitor with a similarly complex business model, used 20% fewer words in its Q4’23 letter than Microsoft’s prepared remarks.

2 - Transparent & Evergreen: 

• Value Prop: Create a single, easy-to-find document that serves as the company’s source of truth over the long-term. A shareholder letter captures the history of key decisions and business performance through direct written commentary.

• Great examples: The granddaddy of them all is Warren Buffett’s Berkshire Hathaway letter to shareholders. Since 1965, Buffett has used folksy prose to address Berkshire’s capital allocation strategy and positioning across economic environments (link to every letter since 1977, albeit only annually). Netrlix is the shareholder letter pioneer in technology. Starting in 2010, Netflix has written quarterly letters to outline its transformation and challenges in the streaming video market. DoorDash provides a more recent IPO company example using letters to describe an intensely competitive and rapidly evolving market. Its Q2’23 letter was praised for describing its evolving investment philosophy (H/T Platform Aeronaut). All three companies lean into transparency and don’t hide behind confusing disclosures, especially in challenging times.

3 - Creates Space for Conversation: 

• Value Prop: Many investors tune-into earnings calls for the Q&A with management, not the prepared remarks. It’s the one time you hear CEOs & CFOs provide real-time answers to challenging and creative questions. Publishing a shareholder letter before the call allows analysts to read and create an informed point of view before talking to the management team.

• Customer problem: Most companies give short shrift to public Q&A. They’ll only leave the last 15-20 minutes for questions. Yes, there’s risk in fumbling an answer to a gotcha question, but there’s also an immense reward for earning a reputation as thoughtful, transparent, and accessible. At LinkedIn, we surveyed over 100 investment community stakeholders for how we could improve earnings. 95% came back and said to cut the prepared remarks and give as much time as possible to Q&A.

• Great example: Atlassian’s co-founders Mike Cannon-Brooks & Scott Farquhar insist that they have 45+ minutes to talk to analysts and won’t stop the call until they’ve answered all questions. It’s a rare practice in the software sector, and analysts love that a) they get the opportunity to ask questions and b) they will hear unscripted answers. B2B analytics leader Similarweb*** releases its shareholder letter the night before its analyst call. Netflix receives praise for its commitment to Q&A over live video.

4 - Brand-aligned:

• Value Prop: With modern web design, companies can create content that reflects their brand and customer value proposition. This evolution elevates earnings beyond the dry lens of financial disclosure to the broader audience naturally interested in a company’s performance (also, investors like to see the customer experience they’ve invested in). This Buffett quote hits the mark, "Possessing a powerful worldwide brand is essential for sustained success.” Showcase that brand in the shareholder letter.

• Great example: Squarespace gives readers the full customer look and feel (Q2’23 letter). It emulates the visual experience of its website builder (LTV is a customer) and uses engaging customer profiles to describe product releases & marketing strategy. Duolingo similarly does a great job of giving readers what they need in terms of concise commentary and trended key metrics with a look and feel specific to its product & marketing (Q2’23 letter).

• Counterexamples: Compare Squarespace to its direct competitor GoDaddy (which admittedly shares solid earnings slides), and there’s a step function difference in experience. More noticeably, Danaher, a perennial IR Magazine industry award winner, does little to stand out through its earnings reports.

Earnings & the Customer Experience

Many companies treat quarterly reporting as a regulatory necessity and miss the opportunity “earnings” creates. Earnings carries reporting inertia (and arguably fatigue) from legal, auditing, and financial markets requirements. All say risk aversion, and none focus on story-telling and ease of use.

When done well, earnings can act as a prime time moment that comes only four times a year. It’s one of the few times the CEO, CFO, and other exec team members go on record to discuss the business. It’s certainly the only time a company publicly webcasts its scorecard on its website. And it’s the one sure-fire time the entire stakeholder audience listens, talks, and writes about the business, whether it be customers, suppliers, governments, employees, the board, the press, or your investors. They’re all tuned in. 

Your primary customer is the analyst or investment manager whose decisions impact your valuation. It’s also the public who shape broader perceptions about your company. With those two customers in mind, the current disclosure status quo does a terrible job of creating a positive customer experience.

Consider your core investor customer. Most market watchers cover 25-50 companies whose earnings get crunched into 4-6 weeks every quarter. You only have a few hours to fully digest a company’s materials then publish content to be scrutinzied by investment managers responsible for millions to billions of dollars of capital. The stakes are even higher for portfolio managers who use earnings to decide whether or not to own a business. You’re targeting an over-stressed, sleep-deprived, time-starved audience and hoping they understand your story correctly.

Yet, most companies produce an earnings product with little empathy for their customers that looks like this:

• Issue a bland press release indistinguishable from hundreds of other companies. 

• Host an earnings call that requires an audience to listen to the CEO & CFO talk for 30-40 minutes in nuanced, hard-to-understand language that leaves little time for actual conversation.

• Release a government-regulated legally-dense disclosure document. 

• Share financials with limited history or future goals, making it nearly impossible to understand long-term trends.

• Make readers consume the above across several different pieces of disconnected content.

There has been little innovation in this list for decades. Returning to the SaaS companies, two-thirds do nothing to distinguish their disclosures for their customers*. 

Be a Reporting Contrarian

Winning over the long-term requires a company to act with conviction and courage over quarters, years, and decades. That courage extends to how companies tell their stories. Some argue that the market is efficient, and valuation is determined solely by the numbers a business produces. We won’t argue against the numbers being the 80 vs. the 20 for share price performance. 

In an attention-starved, short-term-focused world, we believe it’s worth educating the market and identifying the right investors to support a company’s long-term trajectory. The shareholder letter is a powerful medium to communicate a strategic narrative and stand out.

I love former Philadelphia 76’ers GM Sam Hinkie’s resignation letter, which praises long-term thinking (HT KG’s A Letter A Day). The following quote stands out about winning in a market with perfect competition:

If you want to have real success you have to very often be willing to do something different from the herd…In the NBA, that’s wins. The same 82 games are up for grabs every year for every team. Just like in 1985 (or before). To get more wins, you’re going to have to take them from someone else. Wins are a zero-growth industry (how many of you regularly choose to invest in those?), and the only way up is to steal share from your competitors. You will have to do something different. You will have to be contrarian.

In a world where companies compete for investors’ limited mindshare and attention, be a reporting contrarian and communicate through shareholder letters.

About Long-Term Value Advisors (LTV)

LTV is an IR public company advisory firm and thought leadership platform focused on helping outstanding organizations navigate the public markets and build investor relationships to serve their long-term goals.

Check out our Strategic IR Playbook (article | open-source playbook doc), follow our “Shareholder Letters” LinkedIn newsletter, and reach out at contact@long-termvalue.com and our website. 

Footnotes

* This open-source SaaS industry analysis focused on the 71 companies greater than $1bn in market cap, largely sourced from Jamin Bell’s Clouded Judgement newsletter. We added Microsoft, Google, and Amazon to the company population, given their cloud infrastructure businesses provide the backbone for the SaaS industry. Analysis link

** LTV partner Matt Sonefeldt was Head of IR at Atlassian from 2019 through 2021. 

*** LTV partner RJ Jones is currently Head of IR at Similarweb.