Is a Bad New York Times Review Worth $100 Million?
So just how bad was that bad was that New York Times review of the Tesla S Sedan? Well, according the company's CEO, about $100 million bad. In an interview with Bloomberg TV on Monday, Telsa Motors founder Elon Musk said that the unflattering picture of his car that was painted by Times reviewer John Broder was more than just a friendly spat about battery charging times and tire temperatures. "It probably affected us to the tune of tens of millions, to the order of $100 million, so it's not trivial," Musk told Bloomberg's In the Loop. "I would say that refers more to the valuation of the company. It wasn't as though there were 1,000 cancellations just due to The New York Times article. There were probably a few hundred."
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Can that be true? Can a single bad review take away that much value from your corporation? Well, let's look at the numbers.
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On Thursday, February 7, Tesla Motors closed at $39.48 per share, an all-time high, giving the company a market cap of just under $4.5 billion. That was also the same night that Broder's story about his failed test drive was posted on the Times's website. By the end of the next day, it had dropped 24 cents (after a brief morning surge.) By Monday's close— after the story appeared in print in Sunday's paper, Musk called the story "fake" on his Twitter account, and trading volume on the stock spiked—the price had dropped more than a full dollar. Since Telsa currently has 113,000,000 shares (give or take) on the NASDAQ market, that is indeed about $100 million in lost market value.
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But that doesn't exactly tell the whole story. For starters, it's unlikely that many customers who saw just the Times story would have called that very weekend to cancel their orders. Even if they had, it takes time for that sort of news to trickle out to investors who then have to decide if it's worth it to them to dump the stock. Investors may very well have been spooked just by reading the review themselves (which would explain the large spike in trading on Monday), but Musk's tweet and his own Musk's comprehensive rebuttal, published two days later, inspired additional coverage of the Times review even as Musk sought to stem the damage.
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But look what happened a week after that. (And after Broder's rebuttal to the rebuttal.) By Tuesday, Feburary 19, the stock had mostly recovered. It closed at $39.28 that day, just shy of its high-water mark. Then on Wednesday night, the company reported its fourth-quarter earnings, which were not that great. On Thursday, its stock tanked, dropping all way down to $35.16. Our back of the envelope calculations put that at a loss of around $469 million in market value in one day. (The stock has rebounded ever so slightly today, but it's right about where it was after last week's nose dive.)
Don't forget that this was a fourth-quarter earning report, which is based totally on the company's performance at the end of 2012—before the review came out and tech and biz bloggers had time to battle over its meaning. They missed their delivery targets in Q4 and spent more on production cost than they had expected. That seem to have hurt their bottom line far more than the Broder's bad report.
So is Musk right about the damage done to his company? Well, like many things in the world of business generally and this story particularly, the answer lies somewhere in the murky middle. Musk is correct that a negative review of your product can directly impact the actual value of your company. (As can a positive review.) So it is important to defend yourself when you can. However, lots of things impact the value of a company on a day-to-day basis, it is nearly impossible to pin market moves on any one cause. Also, when your stock is worth $4 billion, it doesn't take a lot to move it $100 million or more, as Telsa's frequently does. Even if we know the exact number of sales that the review cost them (a number that even Tesla may not be able to calculate), translating that to a stock price is not so simple.
