What To Look For On Earnings Calls
Earnings Calls are like the ugly stepchild, they’re boring and unattractive, but if they involve you then you’re required to listen to them. They might surprise you every once in a while, but probably not.
The most important part of the call is the analyst questions. This occurs after the CEO & Friends give their respective speeches painting the company in the best possible light, and the financial analysts that constantly track the company’s performance will then unapologetically ask questions that get right to the meat and potatoes. If the CEO is really excited to talk about the new Headquarters being set up in Austin, then the analysts will likely be asking about revenue projections or customer acquisition tactics. They will always ask the questions that the company doesn’t want to answer, and if the CEO is worth her salt, then she’ll respond with an honest answer that paints the company in the best light, or she’ll talk in circles until everyone on the call is very, very confused.
The numbers presented on an earnings call aren’t very important; all of the important data will be uploaded to Yahoo Finance or MarketWatch after the call ends. Also the earnings calls only occur on days when the company puts out its financial report for the quarter or year, so if you’re really curious you can always download the full report (10-Q for quarterly, 10-K for yearly).
The most important numbers are the Earnings Per Share (EPS - hence the name of the call), and Revenue. These are only the most important because these are the figures that analysts predict before the call happens, so they’re checking to see if their predictions were correct. And if the company doesn’t live up to the analysts’ expectations, then the CEO needs to have a really good reason.
But again, the numbers aren’t necessarily important on the call itself, unless you’re one of the analysts working for an investment bank. But rather if you’re listening to the call trying to understand which direction the company is heading, listening to the questions that the analysts ask and how the CEO responds will give you the best indication. And remember, if she can’t completely confuse everyone in the room while still sounding professional, it’s time to look for a new CEO.
Side Note: When looking at financial reports, always read the footnotes first.