Or at least in 2018. That’s how CNBC’s Jim Cramer described Tesla’s (NASDAQ: TSLA) first quarter earnings call. (Watch video.) Jim Cramer gave voice to what every Investor Relations professional (and CEO and CFO) sometimes feel. The tedious questions repeated a thousand different ways, the focus on minutiae and (sometimes) the attitude.
Cramer’s opinion wasn’t the norm. Many appeared shocked that Tesla’s CEO Elon Musk brushed off certain analyst questions and complained about day-traders and short sellers. Musk, it seemed, was not going to kowtow to the providers of capital, the arbiters of valuation. In reaction, Tesla’s stock traded down 5.5% the next day despite the fact that Tesla reported better than expected results. Was there permanent damage? Who knows? Tesla’s stock has since recovered but its bonds continue to trade below par.
In view of the hullabaloo over Tesla’s call, I think it’s worthwhile to unpack the dynamics of the quarterly earnings call/webcast.
It all starts with the SEC Act of 1934, which requires registered companies to provide periodic updates on performance – the 10Q filing. Add-on Reg FD, which requires companies to communicate broadly, and technology, which speeds data gathering, analysis and trade execution, and you create a market ravenous for information. Consequently, the quarterly earnings release and investor call/webcast can be like a sugar-rush for the financial markets.
The audience on the typical call/webcast is comprised of sell side analysts, buy side and retail investors and the media. Companies would gladly prioritize the buy side on these calls if they queued up for questions. But, it’s the sell side who queue up and dominate Q&A. In my view, this reflects, in part, the sell side’s desire to self-promote to attract clients. By asking incisive questions, sell-siders build their reputation and demonstrate their unique insights to investors and media. Thus, the often-lengthy preamble to question(s), the repetitiveness of questions and the (sometimes) skeptical tone of voice.
For companies, quarterly earnings is one milepost along a longer strategic journey. Companies do want to get their story out so that investors can better understand and value them. Yet, too often the focus is on near-term financial metrics and a 3- to 12-month outlook, with little discussion of longer-term opportunity or strategy.
So, its understandable companies get frustrated. Still, it doesn’t make what Musk did on Tesla’s earnings call OK. In the weeks before the call, there was much in the media about Tesla’s cash flow and ability to meet production targets. The earnings call was an opportunity to reassure that Tesla’s could/would effectively handle these issues. However, by blatantly disregarding some questions, Musk instead raised doubts about the company, damaging reputation and value.
A CEO I once worked for said that as a CEO, “you always have to be on.” Meaning you should always be aware that what you talk about and how you talk can be misunderstood, misconstrued or offend. Good advice. Now, you can still have a personal style as Musk does, but a little awareness of the impact of your comments and actions can go a long way in a world where news spreads like wildfire.
Lead-IR Advisors, Inc.
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