Earnings season arrives like clockwork every quarter, every year. Despite its predictable arrival in your corporate calendar, earnings season can be a challenging time for your company.
As an IRO specifically, you have the colossal task of prepping communication teams, corporate access professionals, and C-Suite members for the big call.
The call in question provides your investors with a look at your performance over the past three months, and these insights can realistically chart your performance for the year ahead.
To do so effectively, your company needs to put up a united front during the event. Here are some tips that will ensure everyone is on the same page before you collectively communicate your brand’s narrative.
Crunch the Numbers
Before you can start crafting a narrative around your company’s performance, you need the data to flush out this story. Of course, your quarterly earning reports take center stage as the star of the show.
After all, the earnings call is all about discussing your performance over the latest three-month period.
However, don’t overlook how digital engagement metrics can complement the black-and-white numbers of your earnings.
You can rely on IR tech to leverage actionable leading indicators regarding investor digital behavior, linking touchpoints in online activity to market performance.
Engagement metrics collected from your vast IR platform can provide greater context for your earnings and your overall progress.
Craft a Narrative That Reflects Your Performance
Your IR narrative is a critical strategy during earnings season, as it can help shape the way your investors interpret data.
If your reports show your stocks underperformed, your narrative can couch this news and take the sting out of the numbers.
You can acknowledge the challenges your company faced in the past and provide a roadmap for how you intend to get out of this rut.
Ideally, your quarterly reports are something to celebrate. You won’t have to work hard to spin favorable numbers. It’s an easy win, proving how your company is on its way to achieving its goals.
In either scenario, your IR narrative is your chance to do the following:
- Contextualize your performance within your value proposition.
- Highlight your strengths.
- Reinforce your vision for the future.
Focus on Consistency in Delivery
As mentioned above, your role as IRO involves making sure your entire team is on the same page regarding your IR performance.
That kind of consistency is easier to maintain when you establish a standard of language, design, and data for call scripts and earnings communications.
You should also adapt every touchpoint of your IR platform to reflect this messaging, including press releases, Q&A prep, and your virtual events platform.
Your IR site should get special attention during earnings season, as this is one of the most likely avenues investors will use to learn more about your brand.
You need to publish relevant on your IR site, updating it throughout the season and not just before the call.
Despite earnings season occurring four times a year, each season can present new challenges for IROs. Keep these tips in mind to help you approach your earnings call with greater confidence.
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Guide for active investors
Trading opportunities can be created by the potential of a stock moving a significant amount in one direction as a result of an earnings report.
It would be best to decide what direction the stock is likely to go before you can consider trading it around earnings.
This is a two-part assessment: what do you think the earnings announcement will be, and how this information compares with market consensus?
It is important to have a forecast because it helps you decide which strategy to use. You can use strategies to predict price movements upwards, downwards, or even if the stock is unlikely to move at all.
Consider how the general market mood may affect your evaluation of a particular stock. Imagine, for example, that you believe grocery store earnings will be high but that the overall market sentiment is still bearish.
Consider how the two outlooks will be balanced.
You should monitor company news, both before and after the earnings report, if you plan to trade around it.
The market’s reaction to an earnings announcement can tell you a lot about the company’s fundamentals. This could change expectations for the stock.
The earnings impact on a stock does not only apply to the company issuing the stock. Earnings of related or similar companies often have a spillover effect.
If you own stock in Alcoa (a materials company), then the earnings of Alcoa will have a spillover effect on your investment.
It is important to pay attention to the earnings report of Alcoa because it is the largest company in the sector, and trends that affect Alcoa are likely also to influence similar businesses.
Sector rotation and trading strategies could be revised if new information is revealed in an earnings statement.
The direct route Market timing is complicated. If you want to trade earnings, buying or selling stocks is the easiest way.
You can buy the stock before the earnings announcement if the company reports strong earnings.
You could also short a stock if you think a company’s earnings will be disappointing and you expect it to fall after the announcement.
Shorting carries a significant amount of risk. Shorting should only be considered by experienced investors who understand the risks.
Put and call options are also available to duplicate long and short positions. If the investor expects the price to rise after the earnings report, he can buy the call option.
Investors can also purchase Put options before the earnings announcement if they expect a downward price movement after the earnings report.
Trading options is more risky than buying or selling stocks. Only experienced and knowledgeable investors should use options to trade earnings reports.
Before an earnings announcement, traders should understand the moneyness of options (the relationship between the strike price and price of the underlying assets), volatility, time decay, and options Greeks.
Understanding volatility is crucial when trading options. The chart below compares 30-day historical volatility to implied volatility before an earnings announcement.
Historical volatility is the volatility that security has experienced. The implied volatility is the market’s expectations for future volatility. The shaded areas represent the earnings periods of July, October, and January.
Notice that the IV increased by approximately 14% during the period leading up to earnings. Once earnings were announced, the IV dropped to the HV of the previous 30 days.