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Wall Street has many leading indicators to work with, some serious – such as housing starts and the purchasing managers’ index – and some done a bit tongue-in-cheek. One of the latter is the Super Bowl Indicator, which says that if a team from the original National Football League wins the game, the market will be up for the year, but if an old American Football League team wins it, the market will be down. The amazing thing is that so far this heuristic has an accuracy rate better than 75%! On the other hand, over time some venerable weather vanes become unreliable. For example, the “hem line theory” (that stocks rise and fall with the direction of this aspect of women’s fashion) lost its (ahem) legs, partly because fashion these days is much more anarchic.
Then there’s the Headquarters Effect, which holds that once a company announces that it’s building a new headquarters, you’d be wise to sell its stock. One rationale for this indicator is that companies tend to make these decisions at or near the high point of their business cycle. So even though correlation is not causality, the two events happen in concert frequently enough to make it a reliable predictive indicator. And there are other reasons why people who trade the market believe in the Headquarters Effect. One is that any move proves to be a distraction to senior management: Once the new location is announced, the leaders spend a large portion of their time jockeying for offices and planning their office décor, and when they make the move, they spend too much time assessing fellow executives’ relative status based on office location and décor. In other words, human nature comes into play, which is seldom a stabilizing factor.
Personally, I’ve found the Headquarters Effect to be very reliable. I remember talking to a friend who told me his wife had just started working on designing the interiors of an as-yet-unannounced new headquarters of a company that I covered. Although it was insider information, I should have downgraded the stock right then because it would have been very close to the high of the stock in that cycle. It doesn’t even have to be a brand-new building. When, more than a decade ago, Hyperion Software announced it was relocating up the street a bit on Long Ridge Road in Stamford, Conn., I called up the CFO to warn her that the stock was going to tank because of the move. She protested that they weren’t buying the building and that they needed more space because people were doubled up in offices. I held my ground, and about nine months later, after the move had been made, the company announced disappointing earnings, and the stock sunk like a stone. (Of course, my inner lawyer forces me to note that past performance is not indicative of future results.)
I mention the Headquarters Effect because of Salesforce.com’s recent announcement that it will be moving across town in San Francisco into a huge new campus. Since the announcement, the company’s share price has increased, but this indicator is more long-term in nature. The stock is currently trading in the 130s. I’ll check back on the price next year at this time.
Robert Kugel – SVP Research
SAP is in the process of acquiring certain financial disclosure management software assets from cundus, a German provider of BI and performance management software. SAP will be buying cundus’ Financial Statement Factory and informationCollector, which together manage the collaborative creation and editing of financial and management reports using both structured and unstructured information. SAP expects to complete the deal by the end of 2010.
The transaction follows a similar move by IBM Cognos in its acquisition of Clarity Systems for the same reason: As the United States Securities and Exchange Commission (SEC) progresses in implementation of its “interactive data” mandate, public companies are finding they need to automate the process of assembling their quarterly and annual external financial filings and tagging data with eXtensible Business Reporting Language (XBRL) tags. As well as being required, this not only saves time but can significantly reduce errors. Although many companies are motivated by the SEC mandate, I believe most that adopt these types of solutions will shorten the process and make it more efficient. Moreover, similar (albeit less complex) reporting requirements already exist in many other countries, and I expect these requirements to expand in future years as investors and others demand easier access to corporate data. Also, this sort of application can be used more broadly to automate any complex regulatory filing that requires the collaborative assembly of text and numbers from multiple sources in a company. For instance, it is also used to prepare compliance reports to regulatory authorities such as (in the case of the finance department) Sarbanes-Oxley Act sections 302 and 404 documents.
SAP is deferring comment on many details until it completes the acquisition. I’m assuming that it will integrate UBmatrix’s XBRL tagging tool – which it already offers to customers under the SAP Business Objects XBRL Publishing moniker – to handle this part of the process (cundus also uses UBmatrix in its XBRL Factory application). Earlier this year UBmatrix was acquired by Edgar Online, which also offers an SEC filing service (and thus both supports and competes with SAP). The offering will be priced separately from SAP’s other financial performance management (FPM) components.
I think this addition to SAP’s product line was long overdue: It plugs an important gap in its offerings to finance departments. In the evaluation of the leading FPM software suites in our 2010 Value Index, while SAP achieved the highest score in our assessment, it achieved that despite the absence of this capability. In addition to IBM Cognos, this software competes with offerings from other FPM suite vendors such as Host Analytics, Longview Solutions and Oracle/Hyperion.
Robert D. Kugel CFA – SVP Research