Tech company earnings calls go high-tech at last

Yahoo follows LinkedIn and Netflix in rethinking investor relations.

By Forbes Digital Jul 16, 2013 12:49PM

Later today, Yahoo (YHOO) will announce its second-quarter earnings and then talk about them. The results are expected to be lackluster, but the presentation won't be. 

Instead of the typical, horrendously boring conference call with Wall Street analysts, Yahoo will live stream video with CEO Marissa Mayer and CFO Ken Goldman and make it available on the company's investor relations page at 2pm Pacific time (5pm Eastern). 

Aside from the likely disappointing financials, though, it isn't clear what other innovation Yahoo will bring to the format yet. What is clear is that these once-a-quarter snoozefests are at last moving into a better era where investors and other stakeholders are the clear winners.

It's like deja vu all over again
If you've never listened to an earnings call, let me briefly summarize what you haven't been missing. The company takes the script from last quarter, updates the numbers to reflect the most recent business, makes a few edits as necessary to discuss what is actually new and then delivers a set of canned remarks that typically reveal next to nothing. Oh, and the absolute worst part is that nearly everything management says is contained in a press release that was put out a half hour earlier on one of the digital "wire services." 

After the remarks are read, a group of Wall Street analysts who follow the company ask a series of almost exclusively uninteresting questions designed to clarify some minutiae related to an Excel spreadsheet they use to forecast next quarter's earnings. How do I know this? First, I've listened to too many. Second, I used to help prepare them for the dot-com era flameout Webvan.

Here's an example of how bad these calls are. On a recent Apple (AAPL) call, a Wall Street analyst asked this: "So is there an implied margin philosophy here with this 2Q guide that 36 is as low as you wanted to get and then maybe it gets better from there or is there nothing that we should imply in terms of how the company views gross margins?" (It's OK if your eyes are glazed over.) CEO Peter Oppenheimer responds with about 500 words that basically say, "We're not going to forecast gross margins out into the future, we're going to build great products." Basically, the same thing Apple always says. Nothing in the exchange sheds any light on whether you should buy, sell or hold Apple stock, but it sure took plenty of the precious little time the company allots for Q&A.

A new way of thinking
Fortunately, the old way of doing these calls is dying out. One of the first to change was LinkedIn (LNKD) , which made an important adjustment by including a set of slides with its earnings presentation. You can see an example on the investor section of their website. While there's a lot of buzzwords in them, a major improvement is that management talks to the deck where appropriate and the visual progress of the business is readily apparent. Are margins improving? Slide 15 tells me not really. Is cash flow growing? The same slide says "most definitely." It beats trying to parse an almost intentional opaque press release hands down.

As I mentioned yesterday, Netflix (NFLX) has been a pioneer in rewriting the rules here. The quarterly shareholder letter does a solid job of actually explaining the business. Netflix could do much better by actually reporting things like churn and how many people are watching its highly touted original series but at least the release itself is written for humans. The company decided the past few quarters that since the release itself is good, they wouldn't insult people by basically reading it on the conference call. That leaves more time for Q&A, less time for regurgitation. This quarter, they're taking things a step farther by bringing in quasi-outsiders to moderate the Q&A, taking questions via e-mail and Twitter.

Rather than go with clearly unbiased moderators, though, Netflix invited CNBC's Julia Boorstin, whose objectivity should be a given, and BTIG's Rich Greenfield, whose really isn't. Greenfield earlier this year recommended people buy Netflix stock. Next time, stick with the journalist and leave the analyst on the other side of the table.

Tesla Motors has followed the Netflix model and also dropped the press-release recitation from the earnings call, leaving more time for Q&A. It hasn't yet gone as far as Netflix in taking general investor questions, limiting the field to Wall Streeters, but perhaps that's to come. After all, Tesla's (TSLA) Elon Musk has followed Netflix CEO Reed Hasting's lead when it comes to participating in social media. In fact, Musk has been breaking news about Tesla on his Twitter feed. A year ago, that might have gotten him in legal hot water with the SEC. But thanks to a precedent set by Hastings, using Facebook and Twitter to make company news is now copacetic.

These are a series of small things but the end result is we know a lot more about Tesla, Netflix and LinkedIn than we might if they only did things the old way. And as shareholders in any public company, you should want as much as transparency as possible. That doesn't mean Apple should tell you when the next iPhone is coming, but it does mean you should feel like you understand where the money comes from and whether they are likely to make more or less of it. (For what it's worth, Apple's documentation allows one to piece together pretty good information on the business as Horace Dediu proves regularly at Asymco.)

Whether Yahoo brings some sizzle along with the meat and potatoes of the traditional earnings announcement is something we'll find out soon enough. But at a bare minimum, the addition of live video is another innovation to a format that was tired and uninformative on a good day. Other companies should tune into the stream and see how they can one-up Mayer for their own announcement.

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1Comment
Jul 16, 2013 3:01PM
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Oh boy that will be really exciting - NOT!

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