Sponsored by Syfe
The Aussie Corporate has partnered with Australian investment platform Syfe to bring y’all a 3-part educational series about some of the most exciting areas in our financial markets. You can check out Part 1 here on US Shares and ETFs.
To commemorate Syfe’s recent launch of Aussie stocks and ETFs on their platform, this second guide will focus on helping you navigate Australian and US earnings seasons. As typically “fiscally responsible” and “financially mature” Aussie professionals, we’ve all wondered what the best way is to make our money work for us. Being aware of how to navigate corporate earnings season(s) is just one way to potentially do more with your money.
We know that gathering information to start your investing journey is half the battle. This guide will help kick off your investment journey or if you’re not ready to take the plunge, equip you with some key pointers.
What is Earnings Season?
You may have heard this term used in the news but never understood what this practically means. Earnings season refers to the period in which public companies – from the Commonwealth Bank of Australia to Tesla – release their, wait for it…earnings reports.
Whether this means boasting about record quarterly profits, new customer acquisition milestones, or gently informing investors of a costly mistake or an investment gone sour – earnings season is generally known to be a period marked by volatility given results can go north or south.
While this volatility can create opportunities for investors, it can also create uncertainty for those who’d just rather take a more passive approach to investing (like buying ETFs).
Whatever investment approach you take or have taken, understanding the basics of earnings season – from the what to the why – can help you become a better, smarter, and more informed investor.
You don’t need to be a finance whizz to understand an earnings report (maybe just basic financial literacy) so have a go at looking under the hood of these companies that you’ve invested in.
What is an Earnings Report?
Earnings reports can be separated into quarterly, half yearly, or full year reports. Once published, these are all available on the company’s website (typically, on their Investors’ page).
While companies are required to spell out certain figures in these reports – like revenue and earnings – there is a lot of variation between companies in terms of other metrics provided.
For example, Twiggy Forrest’s Fortescue Metals Group provides investors a view on how much iron ore has been mined and shipped in a given quarter or year. Zuckerberg’s Meta dives into how many users were active on the platform in a given day or month.
Metrics like these give readers a bigger picture view and greater insights into how well a company is doing. Investors can even use these metrics to gain a better understanding of a country’s entire economy!
As with all things finance, reading into earnings reports is both an art and science. Being objective is important, but not always possible.
When is Earnings Season?
Earnings season is not just one event, but refers to the periods in the year when companies are required to inform the market of its earnings results. This deadline differs between, and is set by, each company so it is best to check their website to find this information.
A large number of Australian companies however, tend to hand down interim (i.e. quarterly or half-yearly) and full-year earnings reports in February and August and so colloquially, earnings season will occur around these periods. For example, some of Australia’s largest companies, including CBA, FMG and BHP all report their full-year earnings in August and their half-year or interim earnings in February.
In the US, things are a little different, with US corporates generally handing down quarterly earnings reports in January, April, July, and October. Full-year results that incorporate fourth quarter earnings generally coincide with the January period.
How to Locate Earnings Season Information
Overall, there is generally more visibility on US company earnings and earnings dates than ASX-listed company earnings. For those looking to stay up to date with US company corporate earnings – Business Insider’s earnings calendar is a great starting point that aggregates this data.
By comparison to US companies, getting aggregated data on Australian companies’ earnings dates and data is a bit more of a challenge. For the best results you will need to search individual company investor relations pages to find this information. Here’s how:
- If you are looking for information on when a company is expected to report its earnings in Australia – for example, the Commonwealth Bank of Australia – go to Google and type in ‘CBA IR Financial Calendar’
- if you’re looking for the company’s earnings reports, presentations, and other data points – go to Google and type in ‘CBA IR Results’. This should give you access to everything from earnings presentations, media releases, and full-scale reports.
What to Look Out For in an Earnings Report
For most investors, earnings results or profit ‘announcements’ provide key pieces of insight into a company and can be found on their website.
For example, here’s how the Commonwealth Bank lays out its earnings information: Check out this link from the bank’s investor relations page.
Once you’ve managed to get a hold of a company’s earnings report, announcement or presentation, here are some of the key things you should look out for:
I. Revenue & Earnings
The bread & butter of any company earnings report:
- Revenue – this represents how much the company makes
- Earnings – this represents how much it keeps.
There are two things to keep in mind here. When it comes to revenue and earnings, what primarily matters is the percentage of growth of these figures, not the absolute number. Is revenue and earnings up, down, or flat?
But maybe more importantly, is understanding how the revenue and / or earnings figures stack up against what the company previously said it would achieve or what investors / analysts were expecting it to achieve.
For example, if investors were expecting a company’s quarterly revenue to decline 10% but it only declines 5%, this would likely be considered a positive, given markets would probably have “priced in” the expected 10% decline in the stock’s share price. This is what we mean when we say expectations matter.
Focus on the commentary from the company’s key leaders, whether that’s the Chief Executive Officer or the Chief Financial Officer, but take this with a grain of salt. Most often than not, these people will try to be positive even if prospects are dire. After all, it is their jobs on the line if the company does not perform well.
When we talk about focussing on “executive commentary”, we mean drilling down on both what is said and what is not said. Is the company trying to hide or obscure something? One particular ASX 200 company is notorious for describing its earnings in eight slightly different ways! Be on the lookout for behavior like this – as it likely signals poor accounting or poor communication skills.
Top Tip: While companies are legally required to produce earnings reports and updates – always be on the lookout for marketing spin and obfustication when reading earnings reports. While data never lies, how it is presented to you can be misleading!
III. Outlook & Guidance
While it’s much more common for US-listed companies to provide earnings and revenue guidance than ASX-listed companies, this is still one of those most important things for investors to look out for when reviewing an earnings report.
Generally speaking companies provide guidance to improve communication with the market as well as give investors big and small a better idea of the current and future state of the business. Earnings guidance – good and bad – also plays a central role in informing analyst ratings, price targets and more generally how the market as a whole might value a stock.
Ultimately, if a company doesn’t provide guidance, investors will be left to fill in the dots and make their own assumptions.
Many companies stopped providing guidance through COVID-19 given both the extra-ordinary and unknown impact the pandemic was expected to have on future performance. Now that the world is entering into the post-pandemic era, these companies should be expected to provide outlook and guidance once more in line with past practice.
So why does earnings season really matter? When it comes to Australian and US company earnings, it all comes down to expectations.
If you’ve ever picked up the AFR or tuned into Bloomberg, you’ve likely seen phrases like ‘Apple missed expectations’ or ‘Apple beat expectations’.
One of the key – or maybe only – factors that drives a company’s share price is what the market expects of the company. Everything from what the company has done in the past, said it will do in the future, and what investors think will happen in the future – all these form part of those expectations.
When we say expectations – in the context of corporate earnings – we mainly mean analyst expectations.
Large companies like Apple or Microsoft tend to have many analysts at investment banks and financial firms making forecasts for things like revenue and earnings, among other metrics. All of those forecasts form what is known as a ‘consensus estimate’ or ‘consensus expectation’.
For example, the consensus quarterly earnings estimate for Apple is a figure made up of all the estimates of all the analysts currently covering the stock.
Syfe’s Wall Street analysis tools can help you get a handle on what analysts are thinking on stocks like Tesla, Apple, CBA, & BHP. All data, no BS. In the Syfe app – whether you’re looking at Aussie or US stocks – you can also discover the current analyst rating on individual companies, estimated price target data, and valuation analysis. Just navigate to the company you’re interested in learning more about and tap on the ‘analysis tab’.
Despite all of the above, ultimately, these analyst estimates are just forecasts based on number crunching and available data. As such, you should decide whether this is accurate or not based on your own research.
Miss, Meet, or Beat?
Whether a company has a lot of analyst coverage or a little, when it comes to earnings, what really matters is whether a company misses, meets, or beats expectations.
The general formula looks something like this.
If the consensus is for BHP to report interim earnings (EBITDA) of US$14.3 billion and the miner reports EBITDA around that estimate, the stock might rise a little or it might stay flat. If BHP reports EBITDA below or well below that estimate – it might fall a little or a lot. And if BHP were to report higher earnings than US$14.3 billion – don’t be surprised if the stock rises!
However, here’s one significant exception to the above formula. What analysts and investors are really looking out for in earnings reports is what’s coming next or how current results might impact that ‘what’s coming next’.
This also explains why something that might look like a weird outcome, isn’t actually that strange at all.
For example, BHP might report earnings (EBITDA) of US$14.5 billion – well above what analysts were expecting. However, the stock falls. What does that mean?
In cases like these, it’s worth examining the outlook: Did the company say it would earn less in the coming quarters, that costs would be higher, or competition more intense? All of those factors are arguably more important when it comes to future expectations of the company and the future value of a business.
Top ‘Earnings Season’ Strategies
Beyond the earnings season basics – including what to look out for and where to source information from – here are some high level strategies that people employ when investing in or around earnings season.
This is also a good chance to consider what type of investor you might be:
A. Investing Before Earnings Results
Best suited for: The proactive investor
If you think a stock is undervalued or think its upcoming earnings report will be better than the market expects – buying its stock could be an option worth considering. Here’s some examples to think about:
BHP interim results
Take the recent interim earnings results of mining giant BHP. While the miner made US$13.32 billion in earnings (EBITDA) for the half ending 31 December 2022 – analysts, on average, were expecting BHP to report EBITDA of US$14.3 billion.
It wasn’t just earnings that BHP missed on. Analyst average forecasts were for the miner to declare an interim dividend of US 98 cents per share. The miner declared an interim dividend of US 90 cents per share – compounding the miss on earnings and representing a significant decline in dividends.
Unsurprisingly, BHP’s stock is down a little over 5%, to 14 March, since reporting those results, following those misses.
Meta Q4 earnings
Meta – the company behind Facebook, WhatsApp and Instagram saw its stock go in an entirely different direction to Snap following the release of its Q4 results.
Despite Zuckergberg’s continued commitment to building out the metaverse, social media giant Meta saw its shares rally firmly in 2023 – with the stock up 51% from January 1 to February 2.
That stock run includes a 23% rally off the back of the Q4 release, which saw Meta report revenue above analyst expectations, while also revealing a US$40 billion buyback program.
As both those examples illustrate – the nature of earnings season means heightened volatility – both up and down.
B. Invest After Earnings Results or ‘Buying the Dip’
Best suited for: The proactive investor
For investors who would rather avoid earnings reports and short term volatility, investing after a company has released its operating results may be a suitable option.
This will give you time to assess many of the factors we discussed above, including revenue and earnings growth, the positioning of an earnings report, and future guidance.
This is also potentially a great opportunity for investors to buy stocks they see long term value in that have been mispriced by the market in the short term.
What do we mean by that?
Often following earnings reports you will see extreme swings in share prices that don’t necessarily reflect the long term value of a business.
Examples abound in high quality companies that have been sold off heavily after an earnings report considered poor by the market, only to rebound or remain favorably viewed by analysts. Check it out:
- In 2022 Meta shares plunged 24% after releasing third quarter results. In 2023 Meta shares gained 45% to 14 March 2023.
- In 2017 Starbucks stock fell 9.4% after releasing disappointing third quarter results. Starbucks shares are up 67% over the last five years to 14 March, 2023
- Retail giant Amazon saw its stock fall 20% after holiday season sales disappointed investors. While the stock remains below that price, analysts continue to rate it a Buy, on average, as of 14 March 2023
C. Ignore Earnings Results
Best suited for: The hands off investor
The other option is to simply ignore earnings season entirely and invest with a long-term view – potentially using a dollar cost averaging strategy – regardless of how a company has performed in one quarter or another. This assumes that you likely have conviction on factors like the company’s strategy, its ability to execute it, its business model and competitive differentiation.
Whether this means investing in companies which you think have long term potential or taking a more passive approach and investing in an exchange traded fund (ETF), the choice will ultimately come down to personal preference.
This is ultimately the view held by many great investors, including Warren Buffett, who believes that both institutional and everyday investors have a tendency to focus too much on the short term prospects of a company. Yet it is the long term view, that people like Buffett will argue, is where real wealth can be made.
How to Invest During Earnings Season
At this point, if you’ve decided that you want to invest during US or Aussie earnings seasons, the next step is finding a broker that lets you invest in stocks & ETFs.
In the last few years, a number of investment platforms have emerged that help investors buy and sell thousands of different Aussie and US stocks. Now for the plug… Syfe is one of those platforms.
Since launching, here are some of the things we have been told that Syfe is prioritizing:
Low cost investing
Whether it’s their introductory offer of 10 free trades for new investors or low-fees across the board, including ASX trades from A$4.99 per trade or US trades at US$1.49 per trade – Syfe makes investing a lot more affordable than other platforms such as Selfwealth and Stake. If you’re using old-school online brokers like Commsec, the difference in brokerage costs is even bigger.
Plus, with the recent launch of ASX shares on Syfe, you can first time invest in more than a thousand Aussie shares and ETFs from just 1 share, and still enjoy fractional trading on US stocks and ETFs from US$1.
From investment guides to earnings updates, one of Syfe’s goals is to educate Australians to become smarter investors.
You can find a tonne of information on Syfe’s website (check out the “Learn” page) and their in-app knowledge section, to help you track everything from financial news, investment handbooks (like their recently released ASX 2023 Playbook), and comprehensive company spotlights (including information on company earnings!).
Syfe also provides its users with a variety of practical features, without the fluff.
For example, there is a “recurring buys” feature, which allows you to choose a US stock or ETF to buy on a recurring basis, so that you can benefit from the wonders of dollar cost averaging. This is great for overthinkers or indecisive investors, as this allows you to build wealth on auto pilot over the long-term and smooth out the inevitable volatility that comes with stock trading.
According to research from Charles Schwab that looked at investment performance over a 20-year period, people who invested with a dollar cost average approach would be about US$90k better off than those who choose to stay in cash, between 2001 to 2020. Past performance does not dictate future performance but we think this illustrates the concept well. If you’re interested, check out the key takeaways of that research below:
Beyond the “recurring buys” feature, Syfe also provides you insights from top analysts – we’re talking IBs from places like Goldman, JP Morgan, even Deutsche Bank (yes it’s a bulge bracket!) – to help you understand where US and Aussie shares might be heading next. Syfe compiles all this information in one place – in their app – under the analysis tab on every stock on their platform – which at the time of writing was made up of over 12,000 Aussie and US shares.
Again, you should formulate your own thoughts and hypotheses based on your own research, but it doesn’t hurt to have multiple other opinions.
For you social media fiends, Syfe has also recently started rolling out market moving news in app – think Instagram stories for companies that you can check on throughout the day.
This guide is not financial product advice. Past performances are not necessarily indicative of future performances. References to specific products or services meant to illustrate the concepts of investment and neither intended to be construed as a recommendation nor advice. This is a paid post sponsored by Syfe.