Typically, once a quarter, the leadership within a company (including the CEO, CFO and members of the board) will meet to go over and discuss the past time period's earnings. For publicly traded companies, this call is a matter of public record. Depending on the size of the company and the amount of interest in its reporting, analysts, the media and even investors can join the call.
But for investors, do these calls really matter? Should you listen in, or if you hold a big enough stake in the company, contribute?
The Merits of Conference Calls
There are some benefits in listening to conference calls:
- Earnings. Stock performance and future performance depend heavily on how much money is coming in . A company might have great infrastructure, great leadership and a great idea fueling it, but unless there's an active and growing stream of revenue to fuel its growth, it can't go anywhere. Each earnings call gives you a gauge of how that revenue stream is developing and if there are any issues, how the company plans to address those issues.
- Leadership insights. Conference calls also give you the unique chance to hear how the leaders of a given company interact with each other. Does the CEO sound like they know what they're talking about? Do the majority shareholders sound confident and pleased with the results? Are they articulate and knowledgeable? Dispositions can tell you much about the quality of the leaders within an organization.
- Participation. If you're a significant shareholder in the company, you may be invited to participate directly in the conference call--rather than just listening to what everyone else is saying. For some people, this won't matter at all. For others, this is everything. If you have concerns about how the company is being managed, or further questions about the earnings, this is your chance to make your voice heard.
- Q&A. Most earnings calls also close with a question-and-answer segment, led by journalists and financial advisors. It's a good opportunity to learn the "whys" behind the numbers, rather than the numbers alone.
Why You Can Probably Skip Them
Despite their advantages, earnings calls aren't especially vital to your success as an investor. You can probably skip the vast majority of them and here's why:
- Audio vs. transcripts. Audio conferencing is complicated and most businesses do it wrong. The audio quality won't be especially good, so you may have trouble hearing what's going on. Regardless of the clarity of the call, there will likely be a transcript to follow, which you can skim easily in far less time than it would take you to listen to the conference. In fact, almost all of the numbers and important findings will be publicized later--so joining will only get you that information a bit sooner and in a harder-to-understand format.
- Repetitive formatting. If you've listened to one earnings call in your life, you've pretty much listened to all of them. Earnings calls are painfully repetitive and rarely offer new insights. Each company has a specific agenda, but for the most part, they follow the same formula. After a handful of calls, you'll be tired of all the buzzwords and repeated lines and you'll want to stick specifically to the numbers published after the call.
- Your ownership stake in the company. Unless you have a significant stake in the company (we're talking at least 5 percent, probably more like 10-15 percent), you aren't going to be invited to join the call. The majority of investors, for the majority of their positions, will never be an active participant in a conference call. Therefore, one of the greatest advantages of these calls--getting to talk to company leadership directly, with questions or concerns--is nonexistent.
- The value of other metrics. Most earnings calls cover some important ideas about the future of the company, but they're mostly focused on net revenue--and net profits alone aren't sufficient to make informed trading decisions. If you find out that income missed the mark, that could be an important factor in deciding whether or not to sell your positions--but what about expansion efforts? What about the new leadership in place? What about the dividend yield? Earnings calls won't give you many new insights to make these important decisions.
So, do you need to listen to every earnings call to make sure you're making the right investments? Probably not. You can get most of the numbers you need after the call and those numbers won't represent the full picture you need to make a wise decision anyway. Besides, unless you have a significant stake in the company, you probably won't have the opportunity to contribute anything to the conversation in the first place.
Disclosure: I do not own any of the stocks mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.