What is an earnings call? Definition, frequency and importance

Earnings calls help the public understand a company’s financial performance in the context of its industry and the current financial climate.

What are earnings calls and how often do they occur?

Earnings calls are meetings held by publicly traded companies where earnings and other financial results for the previous quarter (or year), among other things, are discussed with investors, analysts and the media. In many cases, a company’s future plans, goals and profit forecasts are also covered.

Most publicly traded companies hold earnings calls quarterly (once every three months), but different companies release their earnings at different times, so these calls are scattered throughout each “season”. benefits “. Typically, these calls take the form of webcasts, although teleconferences have been more common.

Why are earnings calls important?

An earnings call is an opportunity for a company to not only share its financial results for the last quarter, but also to explain and contextualize them, because in many cases a simple set of numbers cannot paint the full picture. health and position of a company within its industry and the economy in general.

By listening to company executives and insiders discuss company performance in detail and in context, investors can make more informed decisions about whether a given company’s stock was, is, or will continue to perform. be a good vehicle for their money.

What information is discussed on an earnings call?

Most revenue calls follow a similar three-part structure:

  1. A waiver statement from the company’s Investor Relations Officer (IRO)
  2. A discussion of the company’s financial results for the period in question by the CEO, CFO and/or other executives
  3. A question-and-answer session moderated by the IRO

1. Safe Harbor Statement

A safe harbor statement is essentially a disclaimer shared by a company’s head of investor relations that any forward-looking projections (such as earnings estimates for future periods) may not be accurate because it is Of course, these are estimates. The company’s projections of future revenues and profits are commonly referred to as tips.

2. Discussion of financial results

Once the safe harbor statement is complete, the CEO, CFO, and/or other executives typically take over and begin presenting the quarterly financial statement information. During this time, earnings and other financial results are presented in context, and company achievements and setbacks are discussed. macroeconomic factors (eg inflation), industry trends, news and current events can all come into play here, especially if they may have had an effect on the company’s financial performance.

Once retrospective information has been covered, leaders can discuss plans and goals for future periods. Earnings forecasts and other financial estimates for future quarters and years may also be shared.

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3. Question and answer session

After the discussion of the financial results is over, the company’s IRO typically takes over to initiate a Q&A session where investors, analysts and members of the media can submit questions to company management. the company.

Since these calls are usually important and time is somewhat limited, some questions get answered, but many don’t. Depending on the nature of each issue, it may be handled by the CEO, CFO, or another senior manager or department head. Certain questions may also be declined or deferred at the company’s discretion.

How do earnings calls affect stock prices?

When a company’s earnings for a quarter are released and discussed on an earnings call, investors and analysts compare them to estimates provided by the company in previous forecasts. When a company meets or exceeds expectations, its stock price often increases accordingly. If a company’s earnings fall short of expectations, its stock price may suffer.

That being said, forecasts (forward estimates of earnings) often have a greater effect on stock prices than last quarter earnings, because stock picking is a forward-looking game. It is not uncommon for a company to exceed estimated earnings but still see its stock fall simply because its projected earnings are lower than what investors would like to see.

In some cases, other factors discussed in earnings calls may affect the stock price. For example, Netflix’s share price fell 35% the day after its Q1 2022 earnings call despite the company beating its earnings estimate by a significant margin. Why? The company announced that it had lost subscribers for the first time in over 10 years. This sent a wave of panic among its investors, causing a massive sell-off.

Either way, news shared on an earnings call often drives volatility in the underlying stock. Which direction the stock is heading depends on the nature of the news. Some investors attempt to take advantage of the common volatility around profit calls by initiating option straddles so they can make money regardless of which direction a stock is moving, as long as it is moving far enough. .

How can investors attend corporate earnings calls?

Earnings calls are public, so anyone can attend, whether or not they own stock in the company hosting the call. Most can be reached by dialing a phone number listed on the company’s website. Webcast-style calls can be streamed live on a company’s website or elsewhere.

Some digital brokerages (like Robinhood) allow users to participate in live earnings calls and submit questions within their apps or on their websites. And don’t worry, earnings calls are usually recorded, so if you miss one, you can replay it at your leisure.

Frequently Asked Questions (FAQs)

Below are answers to some of the most common investor questions about earnings calls that weren’t already covered in the sections above.

Do all publicly traded companies have to have earnings calls?

While quarterly earnings reports are legally required for all publicly traded companies, quarterly earnings calls are not, so some companies choose not to host them. Most large, publicly traded companies choose to host them because they are a good way to make investors feel informed and heard.

Who talks on earnings calls?

In almost all cases, the CEO and/or CFO speaks on the first part of an earnings call, but who speaks can vary from company to company, and others executives can intervene during the Q&A section if necessary.

How long do earnings calls last?

There is no time limit (or minimum) for earnings calls, but most are between 45 and 75 minutes long.

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