Media magnate Barry Diller says his companies will end the “absurd” practice of giving earnings guidance to shareholders.
The billionaire chairman of IAC and Expedia said firms are wasting the time they spend setting targets for their financial performance. The coronavirus pandemic has already led many companies to withdraw their guidance because of the economic uncertainty the crisis has created.
“It kind of gave us the opportunity to say, you know what? Guidance is a bad business. We’re out,” Diller told CNBC on Friday. “We’re not doing it anymore, for either Expedia or for IAC.”
“Spend your time actually figuring out where you should invest your money, how you should run your company,” he added. “Anybody who runs their company for a quarter is a bird-brain.”
Issuing guidance is a common practice for public companies even though it’s not legally required. Proponents argue it keeps firms accountable to shareholders, CNBC reported. It’s also viewed as a way to increase a company’s stock price by boosting investors’ confidence, according to a Harvard Business Review article.
But some business titans reportedly argue that companies can fudge guidance to make it look like they beat expectations. Skeptics of the practice include investment maven Warren Buffett, whose conglomerate Berkshire Hathaway does not issue guidance.
“It keeps companies accountable? It keeps companies doing dumbass work,” Diller told CNBC.
“Companies spend too much time massaging the process, getting the model right, so that they can always beat, not miss, expectations, and the markets are always reactionary on that wildly short-term dumbness of what happened in the next quarter,” he added.