Earnings Calls: The Secret Stock Information Hidden In Plain Sight


It’s that time again — it’s Earnings Season!  What’s Earnings Season you ask?  Earnings Season is the time when publicly traded corporations announce their earnings (or losses) in the prior quarter.

It happens like clockwork, four times a year, and the reported results tend to move markets… sometime wildly.  Take for example Netflix’s recent meteoric 13% climb last week after they announced very good earning results.

Why does this happen?

Earnings move markets because even though stock price are quoted daily, actual business results are only reported quarterly.  This new business information tends to move markets either negative or positively when it’s announced.  You can think of market as ‘correcting’ to meet the new information when earnings are released.

Most people of course don’t bother to read the actual press release from the company.   Instead Joe Public typically reads someone else’s interpretation of the business facts (if they bother at all).  The media blurbs tend to boiled-down to a few of the most “headline ready” facts….

“Neflix adds 8.5 million subscribers.  Shares rise 10% in a single day.”

Such headlines are a major simplification and this lack of detail obscures the real and very important facts that investors require to make decisions.  Wise investors have known for decades that such reporting should be ignored, and actual earnings releases published by the company should be read instead.

Facts are always more important than hyperbole. October 20th, 1987 was a one such example of Mr. Market letting the hyperbole get out of control.

While the facts and figures may get ignored by Joe Public investors, there’s still another investing tool that gets ignored even more often — Earnings Conference Calls.

 

The Earnings Conference Call

Earnings conference calls are just that — A conference call between a business’s management and stock analysts that follow a stock.  These conference calls take place once a quarter, typically on the same day earnings get released, and last about 1 hour.

Typically a earnings call is divided into three sections:

  1. Introductions and Instructions From The Operator
  2. Earnings Information.
  3. Q & A

The bulk the earnings call ends-up being a simple repeat of the earnings press release.  So, I can understand why many investors skip earnings calls.  Usually there isn’t new information divulged in the earnings sections of the conference call.  It’s typically a real snoozer.

What happens after the scripted earnings information is SOLID GOLD however.  — The Q&A section is when the call gets opened-up for questions.

This is where things get really interesting in my opinion, because management has no way of predicting what questions will be asked.  Quite literally, management is forced to answer the questions “off the cuff”.  Management’s answers can be filled with extremely insightful information about the state of a business, its industry, and even it’s competitors.

For investors who believe that a good business is still necessary to produce good stock returns, the conference call Q & A session can be absolutely invaluable in understanding the nuances of the business underlying a stock.  Furthermore, a lot of this information can be found nowhere else.

So why don’t more investors listen to earnings conference calls?  That’s a very good question!  One reason might be that earnings calls were historically very hard to listen-in on.

 

How To Listen-In On a Earnings Conference Call

In the old days (prior to the year 2000), earnings conference calls were tricky to listen-in on.  You either had to be an analyst or a very large investor to get access.  Small investors and journalists were often banned from such calls.  It was an exclusive club that gave stock analysts an unfair advantage.

After the year 2000 however, the U.S. SEC mandated that all investors be allowed to participate in such calls under fair disclosure regulations.  Now everyone can listen-in on the calls, but the exclusivity still remains — If you’re a journalist or small-time investor it’s extremely unlikely they’ll take your questions.

(You can still enter the question queue, but a call moderator will almost certainly make sure you won’t get to ask a question.)

There’s also the complexity of timing —  Many companies release earnings on the same day and conference calls happen at very similar times.  In the old days it wasn’t easy to catch more than a few of these calls, especially for small-time investors with a J-O-B.

conference phone
In the old days you actually had to call into the conference call on a phone. Few small investors had access to calls or jobs that were flexible enough to allow this.

Worse yet, you had to sit through the first 45 minutes of the call (the boring scripted part) before you got to the Q&A portion.  No small-time investors had time to do this for every stock they invested in!

These days however, things have gotten a bit easier and more equitable for us “little” investors.  A stock’s investor relations department now publishes a recording of the earnings call on the company’s IR website.  Typically it shows-up on the IR website a day later.

While not live, these call recordings are in a streaming audio format.  You can quickly skip-ahead through the scripted portions.  Instead of wasting 45 minutes on every call, you can now get to the Q&A section in a matter of seconds.

This speeds things up immeasurably… but it still can pretty slow if you follow a lot of stocks.  The recording is still “audio of humans talking”.  They pause, they cough, the phone line cuts out, and occasionally they even need to repeat the question.

In other words, audio recordings can still be pretty slow.  Which is why earnings call transcripts have become my go-to for reading earnings call questions.

Text transcripts are about a 100 times better than listening to an audio recording because I can read through one a lot faster than I can listen to audio.

 

Where to Find Earnings Call Transcripts?

Where can you find text transcripts of earnings conference calls?  Unfortunately, this isn’t as simple as visiting the company’s website.  Text transcripts are still rarely published on a company’s website.  A few good companies do publish the transcripts, but not many.

(Netflix is an example of a company that does publish a text transcript)

Typically it’s third party companies that are creating the text transcripts, and they are frequently hidden behind paywalls.

While paywalls are increasingly becoming common, there are still two sources of transcripts (that I know of) which publish freely available text transcripts:

  1. The Motley Fool. https://www.fool.com/earnings-call-transcripts
  2. Alpha Street. https://news.alphastreet.com/

Both companies provide earnings call transcripts free of charge (at least for now) of the most recent quarter.  This include hundreds, if not thousands of the largest public companies in the United States.

Occasionally I’ll find a rare or obscure stock that doesn’t get a text transcript, but the vast majority of public companies do have text transcripts of earnings conference calls available at these two sites.

 

Wrap Up

For seasoned investors who already listen to the earnings conference calls (or read the transcripts), this might sound like a basic tip.  But you’d be surprised at how few investors actually bother to access them.

It’s one of those rare cases where really good investing information is hidden in plain sight.  Information that can be hugely important to making intelligent investing moves.

Do I recommend that small investors read or listen to earnings conference calls?  Absolutely.  If you’re investing in individual stocks, I highly recommend it.  I can’t count the number of times the information contained in those calls has been invaluable to me over the years.

Not all investors are going to be interested in that level of detail of course.  They’re more of the “invest and hope” variety… and I wish them the best of luck.

But for me, making good investing decisions means having as much information as possible to make smart, rational, and informed decisions about the businesses I’m investing in.  Earnings conference calls might be a little obscure, but they’re another very good tool in my investing toolkit.

Good luck to all investors!

 

[Image Credit: Flickr1, Flickr2]

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11 thoughts on “Earnings Calls: The Secret Stock Information Hidden In Plain Sight

  • January 24, 2021 at 3:15 AM
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    Hi Mr. Tako,

    Interesting post and source of information. As a non-native English speaker, the transcripts will be a helpful tool if I do not get the main idea from the records.

    Cheers!

    Reply
  • January 24, 2021 at 3:00 PM
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    Agree with earning calls, especially the Q&A section can tell you a lot about the company. I generally like to read the transcripts rather than the recorded calls.

    Reply
  • January 24, 2021 at 4:46 PM
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    That’s really cool stuff, Mr. Tako! I never dug into it much, but I had no idea that you individual investors could listen to the earnings calls. I mostly index, but I do have a few individual “fun” stocks that I think the earnings calls would be interesting to hear.

    Gracias, mi amigo!

    Reply
  • January 24, 2021 at 5:59 PM
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    Years ago when I was getting into individual stock investing, I started listening to earnings calls online once they were published. You’re right, you can glean a lot of information from them—and especially the Q&A. I think you can also get a feel for the leadership, beyond the literal words they’re speaking, of how they answer questions—their tone and tenor; confidence. If leadership qualities matter to you as an investor, that’s another aspect to consider.

    I hadn’t thought of digging for transcripts, but indeed, if you’re trying your hand at more than say 10 companies, it’s going to be really hard to keep up with all the earnings calls. Transcripts are a smart idea and offer a clearer reference.

    While I’m not big on individual stock these days, I still read a single “earnings-like” report…though it’s just the annual report. And it’s not a report… it’s a letter. Yea, you know what I’m getting at. Buffett’s annual letter. It’s a wealth of information for the entire economy and I love reading it.

    Great tips on transcripts Tako!

    Reply
    • January 26, 2021 at 12:26 AM
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      Thanks TTL! I agree you can learn a lot from tone, so there is still value in the audio recordings. The problem is (of course) time.

      As a parent, my time is pretty limited and I don’t always have enough to listen to every earnings call. Some I still do of course.

      Thanks for reading! 🙂

      Reply
  • January 25, 2021 at 11:21 AM
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    I am a big fan of getting the “real” information from the source. Reading transcripts is good for the material, but misses the tone from management. Sometimes you can get more out of how they say it versus what they said, however listening takes more time and I usually only call in if I am considering exiting my position for whatever reason.

    Have you tried to ask questions? Have you noticed a difference in the ability to ask questions based on the company size?

    I’ve also has mixed experiences emailing questions directly to investor relations.

    Reply
    • January 26, 2021 at 12:28 AM
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      I’ve only ever seen one company allow a individual investor ask a question. It was a fairly small company, and I think it might have been an accident that they let the person ask a question.

      For the most part, earnings calls are limited to a select group of analysts. You see the same group every quarter. The moderator won’t allow small-timers to even speak.

      Reply
  • January 25, 2021 at 7:22 PM
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    Earnings calls are an undervalued and not very well known within retail investors. Good point about them. I generally like reading about earnings call on the web from Motley and such as you’ve mentioned.

    They can be quite interesting, indeed. Like when Elon Musk called someone a bonehead, ha. You never know what to expect.

    Reply
    • January 26, 2021 at 12:29 AM
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      It’s that candor that’s super important. When people’s guard is down you can learn a lot!

      Reply
  • January 27, 2021 at 3:41 AM
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    Earnings calls and presentations were always a great source to get insight into problem areas that management preferred to gloss over.

    I’ve found that during Covid, in my market at least, many firms have made the AGM and results presentations a formality, some of them even refuse to take any questions or have any interaction. It seems they are hiding behind the technical difficulties of trying to do a webinar and just say it’s too hard, no need for questions. It’s a real shame to do that, and not a trend I’d like to see continuing.

    Reply
  • January 29, 2021 at 7:21 AM
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    It was really interesting to read about the history of earnings calls. I appreciate you breaking it down. All in all, it also amazes me how much technology has advanced our lives and allow us to read transcripts of calls now. I wonder what the future will hold…

    Reply

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