Guide: How To Analyze Earnings Calls
Includes a free checklist you can use to analyze earnings call transcripts.
Dear CMQ Investors,
Previously, I compiled Warren Buffett’s wisdom on how to read an annual report. The popularity of that post inspired this content. I hope you enjoy it.
What Is an Earnings Call?
Earnings calls are official events where public companies present their financial results for a specific period to investors, analysts, and the media.
They provide insights into a company's financial performance, strategies, and future outlook, helping stakeholders make informed decisions.
After the presentation, there's typically a Q&A session where analysts and investors can ask company executives specific questions about the reported results and company strategies.
The Q&A section of an earnings call can provide unscripted insights and reveals how management addresses challenging questions.
Furthermore, the way information is communicated, both in content and tone, may provide investors with deep insights into a company's current status and its future prospects.
📚 Interesting Read: How to Listen for the Hidden Data in Earnings CallsReal-World Example: Tesla’s Q3 2023 Earnings Call
I highly recommend reviewing the Q&A portion of the Earnings Call. Whether you listen or read the transcript is a matter of preference. I prefer to read the transcript.
How Do You Find Earnings Call Transcripts?
To find the earnings call transcripts, the best place to start is the Investor Relations portion of the company’s website.
There are also paid and free tools that helps you access the transcripts. My preferred tool is called BamSEC. (I am not paid to mention them). The image below shows the archive-view of Tesla’s various transcript. I value this because sometimes it’s important to compare what management said and what they did.
I recognize not everyone is going to want to pay for a service.
The free tools below also give access to the transcripts. However, I they are not as reliable and user-friendly as I find BamSEC.
I’ve compiled three additional tools below:
edmundSEC: You have to login, but the transcripts appear free.
MarketBeat: Here you will find a list of earnings call transcripts for S&P 500 companies. These earnings transcripts are freely available to the public with no paid subscription required.
AlphaStreet: This is similar to the above. Have you read Netflix’s latest earnings calls transcript? That’s next on my list.
Our Checklist for Analyzing Earnings Calls
This is an original checklist you can use when listening to an earnings call or reading the transcript.
Preliminary Preparations:
Obtain the latest earnings call transcript for the company of interest.
Familiarize yourself with the company's recent financial statements for context.
Review any recent news or industry trends that may impact the company.
Review Structure of the Call:
Identify the company executives participating in the call.
Note the overall structure: introductory remarks, financial presentation, Q&A session.
Analyze Introductory Remarks:
Look for general statements about the company's performance.
Understand the management's tone: optimistic, cautious, or pessimistic.
Check for any forward-looking statements or guidance provided.
Evaluate Financial Presentation:
Compare the figures mentioned to previous periods and analyst expectations.
Identify any inconsistencies or discrepancies.
Note any reasons given for strong or weak performance.
Deep Dive into Q&A Session:
Determine the types of analysts or investors asking questions.
Assess the candidness and clarity of the executive responses.
Pay attention to any questions diverted to other team members, especially if the CEO redirects financial questions to the CFO.
Focus on Language:
Check for frequent use of euphemisms that may obscure bad news (e.g., "headwinds", "lumpiness").
Identify instances where management uses phrases like "wait-and-see".
Be wary of excessive jargon or overly complex explanations.
Evaluate Executive Talk Time:
Analyze how often the CEO speaks compared to other executives.
Determine if there's a balance or if one executive dominates the conversation.
Search for Linguistic Features and Personality Insights:
Take note of any recurring words or phrases.
Look for indicators of CEO personality traits (e.g., "worried", "enthusiastic").
Review Responses to "Contrastive Words":
Identify disclosures before and after words like "but".
Gauge market reactions to these disclosures, especially what comes after "but".
Check Historical Calls and Trends:
Compare the tone and content of the current transcript with previous ones.
Identify any recurring issues or questions.
Post-Analysis Actions:
Collate key takeaways and insights.
Determine if further research or follow-up is needed, especially with other industry players or experts.
Adjust investment strategies or portfolio based on insights.
Stay Updated:
Attend or access subsequent earnings calls to keep updated on company progress.
Continuously refine and adjust this checklist based on evolving needs and findings.
Three Key Takeaways
Earnings calls are a valuable resource for investors who want to learn more about the companies they are invested in and to make informed investment decisions.
Always consider combining this analysis with other forms of research and due diligence. Using multiple sources of information beyond earnings call transcripts ensures a holistic understanding and reduces decision biases when making investment choices.
Avoid drowning in the minutiae. I personally think there’s over emphasis on things like analyzing the sentiment or tone. That’s not what really counts when it comes to analyzing a business.
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