It's time once again for every finance bro’s favorite time of the quarter, Earnings Call week!
If the idea of diving into a company's earning report sounds intimidating or overwhelming, you’re not alone. Today we’re breaking down what you'll hear on the typical Earnings Call, and what to do with the information you get from them.
📰 In the Headlines
Translating some of this week's biggest stories
Translation: Earnings Calls have been mostly good news so far.
It's about time we got a little good news. So far, many companies are reporting that they did better than they expected the past few months, which is making the entire stock market go up.
Translation: Tech companies are on high alert for the trolls and fakes that might impact the upcoming US election
After the mess Facebook and Twitter dealt with around the election in 2016, tech companies are being proactive and aggressive to make sure they are not accused of helping anyone overly influence or tamper with the election this year. Many tech companies have entire teams dedicated to ensure this effort.
Translation: Air travel is regaining its altitude
In the list of industries hit hardest by the pandemic lockdowns, airlines are pretty far up at the top. For some reason, sitting in an enclosed metal tube where you share oxygen with 100 or so other people isn’t our first choice activity when there is a deadly disease going around. But it looks like the number of airline travelers is finally creeping back up.
📞 A Lot on the Line
If you are just getting into investing, the idea of listening in on an Earnings Call might sound pretty intimidating. But I promise, it's not. Here is a simple guide to the understanding a corporate Earnings Call.
What is it?
About every three months, a public company hold a conference call or webcast where they talk about the companies performance over the past few months. These conference calls are what we call the "Earnings Call".
Why do they do it?
Companies want you to buy their stock. In fact, CEO’s main job is to keep the stock price growing, so people keep investing in the company and investors keep making a profit. By taking the time to share how the company is doing, people are more likely to invest in a company.
What to expect
Every company's earnings call looks a little bit different, but if you listen in, this is usually what you will hear:
⚓️ Safe Harbor Statement
Before the CEO dives into the numbers and makes predictions about the future, someone at the company reads a ‘Safe Harbor Statement’ or a liability waiver. The information and predictions shared in earning calls can affect the entire stock market, so they have to be sure they don’t get in trouble if things end up not going according to plan.
🔮 Profits and Predictions
In the second part of the presentation, the CEO or CFO take the mic to give their status report. The typical topics?
- Whether they met, exceeded, or missed their predictions from the last earning call.
- How they met their goals, or if they didn’t, what went wrong.
- The company's goals and predictions for the next quarter.
- Any big changes that have happened since the last earning call. Some companies take this as an opportunity to make announcements too.
This is by far my favorite part. After the CEO or CFO makes their entire presentation, they take some time to answer questions from investors and stockholders. So if you own stock in Tesla, you could potentially be chatting up Elon Musk once every few months about car orders.
Usually, the company chooses who gets to ask the questions, and occasionally they will take a few from regular stockholders like you or me. Check out the companies website to see how they select who gets to ask questions.
What are they saying?
Folks in finance love their jargon and acronyms. Here are some of the terms you might hear on an Earnings Call and what they actually mean.
Earnings Per Share (EPS) - A calculation of a company's profit divided by the available shares of its stock.
Form 10-Q or 10-K - These ‘forms’ are reports the company is required to give the Securities and Exchange Commission, or the government agency that's responsible for regulating investing and stock trading. They mostly just contain the information thats discussed on an Earnings Call.
Management Discussion & Analysis (MD&A) - the part of the presentation where the CEO or CFO share how the company is performing.
How do I use this information?
Adjust your strategy! Did the company announce that they sold twice as much merchandise than they were expecting? Maybe it's time to double down on your purchase. Did all their workers go on strike for a month? It might be time to sell it off.
Use the information and forecasts they make to inform your decisions about how much of their stock you want to own and for how long.
How do I listen?
Most companies issue a press release about when and where their earnings call will be about a week before the event. If you can’t join in live, they typically share a recording of the call on their company website for a few weeks after the event too.
You see? Earning Calls aren't that scary at all. If you are thinking about taking the risk of investing in a company, it is probably worth your time to listen in.
Word of the Day
(n.) Most companies set goals and review how they are doing every three months, or four times a year. They do this because one month is usually too short of window to actually see changes, and if they wait an entire year, they might be too far down the wrong path.
Each of these three month periods if called a "Fiscal Quarter".
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