Online financial news sites don’t just report on the Net stock madness, they get rich from it. Can they cover the market while being part of the hype?
As Internet stocks froth up, down, and back up again, they have become one of the biggest stories of the decade. Eager to ride this wave, online financial news services are themselves going public-or at least hinting at the prospect. So how does a Net-based financial news service objectively cover a market in which their reporters have a financial interest?
Very carefully, says Larry Kramer, CEO of financial news Website CBS MarketWatchwww.cbs.marketwatch.com. Or sometimes not at all. On the day of its January IPO, MKTW soared from the initial strike price of $17 a share to $130, before closing at $97.50. It was the second most successful IPO in history after theglobe.com, with an initial market valuation of $1 billion. However, the site’s staff of more than 30 reporters could not report the story-odd for a site covering finance. Reason: The company was still in the SEC-mandated “quiet period” required of all IPOs.
All news feeds from other sources hitting the site, such as Reuters and Bloomberg News, had to be screened for references to MarketWatch.
“We were the biggest story of the day, and we couldn’t report it”, who has options on 200,000 MKTW shares. Post-quiet period, Kramer says he is still unsure how he will handle editorial coverage of MarketWatch (though the company has posted quarterly earnings on its site since the quiet period ended in February).
Can these supposedly impartial sites be trusted? That’s debatable, say some analysts. “These sites are very vocal in saying they don’t buy and sell stocks, but the same time, the writers and editors have options in the company”, Communications senior analyst Peter Keane.
In an effort toward impartiality, most online financial sites have policies on employees owning and trading individual stocks-some stricter than others. For instance, MarketWatch “frowns” upon its reporters owning stock in companies they report on, and full disclosure is required on each story. However, reporters are prohibited from trading or owning stocks outside of mutual funds.
A veteran of the industry, also offers full disclosure on all stories as well as reports on its company activities. News.com openly and clearly reported on the mothership’s $12.1 million stock swap for NetVentures in February. Still, valuable insight was missing. There was no indication that CNET itself may also be on the block.
Gerard Honeycutt, that potential reporting pitfalls have kept his company largely out of the reporting business. “There is a lot of commentary out there and everyone is a critic,” Honeycutt says. “Some people reporting online are extremely green, which doesn’t suit the readers we want to attract.”
The Mountain View, Calif.-based firm, which has 300,000 registered users and offers news and information for more savvy investors, has one staff reporter and relies on established brands like Reuters and Bloomberg for news.”It’s hard to distinguish the quality of reporting online,” Honeycutt says.