On Our Minds: What I Learned on My First Earnings Call as an Investor

Cheerful classical music played through my laptop speakers, a subtle reminder that this wasn't my typical morning routine. A notification stating that the webcast "will begin soon" stared back at me through the screen. I was waiting for my first earnings call as a self-directed investor to kick off.

I admit, I was a little nervous – and if you've ever been a newbie investor tuning into earnings season for the first time, you probably know the feeling.

I had sat in on earnings calls before, but only as an employee of the company hosting the call. I'd half-listen at my desk while plugging away at work, shrugging off unfamiliar terms like EBITDA (short for "earnings before interest, taxes, depreciation and amortization") and really only paying attention for keywords that could hint at my future prospects – "profits" (a bonus?), "growth" (a raise?) or "acquisition" (layoffs?). This time was different. I now owned shares in an e-commerce company – one that I had carefully chosen myself as a long-term investment – and I was fully focused. After all, my money was at stake.

The melody subsided and the hour-long event got underway. It was a learning experience, to say the least.

What happens in an earnings call

The call started with a disclaimer (forecasts cannot be guaranteed, after all) and a brief overview of what would be covered. First, the CEO would open with highlights. Next, the head of investor relations would follow up in more detail about the company's achievements, opportunities and challenges over the last quarter. Finally, callers would be invited to field questions to the company's top brass.

I shuffled my notes as the first presenter unmuted. I was listening out for a few key points: a summary of the company's latest numbers, of course, but also information about the company's expansion plans and a response to a controversy arising from a recent short-seller's report – all topics one could expect an earning call to cover.

The CEO delivered – in fact, I was taken off guard by the speed of the presentation and the technical language being thrown around. Callers received a high-level view of the company's health with an update on customer growth, losses and total holdings — plus some light humblebragging about record-high revenues. The controversy was addressed briefly in reassuring terms, then the meeting moved on. The executive who followed up spoke more closely to the challenges facing the company – supply-chain issues, for one, like others have faced – and future prospects, like expanding its user base. My interest waned slightly as callers were invited to ask questions. Some queries were shockingly specific – pertinent to that particular analyst or banker's concerns, no doubt, but certainly not mine at the moment. Average retail investors were not passed the mic, but it's not uncommon to give them an opportunity to speak up after the finance pros have had their chance.

Before I knew it, the earnings call was over – and I had just as many questions as before. Ears ringing with what sounded like great news – Revenue is up! The company's expanding internationally! – I checked the stock price. To my surprise, it had taken a nearly 40-per-cent hit.

It was a worthwhile reminder that earnings calls are one tool companies use to get their stories out there. Good news and positive forecasts tend to be the focus of discussion; and while bad news and challenges will be covered in the interest of legally mandated transparency, they can sometimes be underplayed or receive less airtime.

Overall, I found it a worthwhile experience to call in as a shareholder. Next time, though, I plan to do a few things differently to make sure I'm listening with a critical investor's ear. After all, there will be many more earnings seasons to come!

Prepare more. I'd take more time to review previous earnings statements, as well as the prepared statement that typically accompanies a call.

Study terminology. While I recognized most of the general business terminology and key progress indicators (we meet again, EBITDA), less-familiar, sector-specific acronyms threw me off. For instance, it was only after the presentation that I learned gross transaction value (GTV) is a key progress indicator fairly unique to e-commerce.

Define my objectives. Having the latest numbers in hand is helpful and all, but there's something to be said for having a game plan after they're released. How do I plan to change (or not change) my portfolio depending on the news investors receive? How will I react if there are any surprises?

Follow up. In the hours and days following an earnings call, I'd keep an eye out on analyst and media reports about the company for more context. This might help me better understand the relationship between a business' forecasted and reported performance, and its stock price – and hopefully keep me from overreacting when I think the news sounds great but the stock price drops!