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EARNINGS KEYWORD TRENDS 📊

Instead of getting flirty this Valentine’s week, we decided to get down ‘n NERDY. Reeeal nerdy.

Earnings Szn baby. It’s every stock market brofessional’s favorite few weeks to act like they know what the hell is going on in the world. Myself included.

And if nothing else, the past few weeks of Q4 corporate earnings calls have been entertaining — lots of layoffs, lots of big revenue misses, lots of carnage. What a time to be alive.

With so much going on in such a tumultuous time, I found myself wanting to read ~everything~ I could find; I needed to gauge the pulse of how US companies are truly faring thru these post-pandemic / pre-recession in-between times.

So I did. Kind of.

I went back through a random sample of 500 earnings transcripts from the past year, and (algorithmically) read through each one, parsing out the top keywords used and their change in frequency over time. The results? Pretty remarkable tbh.

Over the last year, the lexicon of earnings calls has changed *dramatically*, from relatively upbeat on average, to downright pessimistic on the whole.

And despite corporate IRO’s best efforts to strategically pick modest words & underplay the severity of their situations (which is literally their entire job), the truth still shines through their words like Swiss cheese. 🧀

Don’t believe me? Here’s a list of some top keywords with the biggest changes in mention frequency over the past year — below, we’ll walk through some of the most notable ones as a guide to deciphering earnings-speak.

EARNINGS SEASON IN 10 WORDS

A somewhat definitive guide to understanding what Investor Relations Officers are *actually saying*

For starters, there are certain words that you’ll always hear in an earnings call. Words like ‘growth’, ‘customers’, ‘strength’, & ‘guidance’. No brainer right?

Well, apparently there are also words you will *never* hear on a call — ‘layoffs’, ‘cutbacks‘, ‘pessimistic’, and ‘miscalculated’. Because these guys know using these words is an immediate red flag…

So you’ve gotta read between the lines to find the red flags. Look at how the words they *do* use change from quarter to quarter. That’s where the nuggets are.

Allow me to interpret:

Rising Earnings Keywords

First, a look at the words that’ve begun popping up A LOT more in recent times:

1. ‘Losses’ 🚩

• Mentions of the word ‘losses’ have increased +2418% from Q1 2022 to Q1 2023, which tells you just about everything you need to know. Corporations are hemorrhaging money compared to last year; the average call mentioned the word ‘losses’ roughly 5 times.

2. ‘Recession’ 🚩

• And if that wasn’t convincing enough for ya, the word ‘recession’ has increased +763% in earnings mentions over the past year, mentioned at least once per call on average. By this indication, it’s only a matter of time before the National Bureau of Economic Research officially declares a US recession.

3. ‘Modest’ 🚩

• Translation: Horrible. If a company is saying revenues are ‘modestly below expectations’, it means they’re way worse than they thought they’d be. No one uses modest to describe a positive outcome.

4. ‘Frankly’ 🚩

• Same goes for ‘frankly’ — have you ever heard a corporate exec say “Frankly, the product is flying off the shelves & we have more money than we can fit in the vault”? No, you haven’t. It’s always a negative connotation.

5. ‘Headcount’ 🚩

• This one took some digging. When the topic is hiring, a company refers to their workforce as ‘employees’. When the topic is layoffs (which we’ve seen A LOT of recently), then proper term is ‘headcount’ — I guess it’s less personal that way. ‘Headcount’ mentions have doubled over the past quarter.

6. ‘Headwinds’ 🚩

• Not to be confused with headcount, headwinds basically means ‘Oh shit we’re actually screwed’. It’s the nicest way to say that whatever your business is doing isn’t working, and that the probability of success is basically out of your hands.

Vanishing Earnings Keywords

On the flip side, the words that corporations aren’t using anymore also speak volumes. Some top words that we aren’t seeing nearly as often as we used to:

1. ‘Advertising’ 🫥

• The word ‘advertising’ has dropped -93% in mention frequency over the past year, most reports don’t even include the word at all nowadays. That’s because as the economic outlook sours, expense budgets dry up quickly, and the first line item to be cut tends to be ad-spending.

2. ‘Bookings’ 🫥

• Mentions of ‘bookings’ (ie. rentals, appointments, etc.) have dropped -70% over the past year, presumably because business is down for most companies. After all, why mention it at all when you can just avoid saying it all together?

3. ‘Acquired’ 🫥

• Translation: customer acquisition and M&A deals are both down. The frequency of ‘acquisition’ mentions has been cut in half over the last year, and while dealflow remained near record-high’s through most of 2022, the last two quarters have been a different story by this measure.

4. ‘Employees’ 🫥

• Exactly the same point as with the word ‘headcount’ from above. Corporations only call people employees when they intend to keep them around, otherwise they’re just heads.

To wrap up here, earnings season wasn’t great by last year’s standards; and the way things are trending, they’re looking to get worse.

A next step for us here could be to check which individual company reports over- or under-index on specific keywords, and see if we can predict returns based on that. Also could be fun to check SEC filings for mispellings as another predictor of ineptitude.

If you’d be interested in reading more stuff like that (or seeing it live as a feature on our website), let me know by commenting/liking this post. Thanks and good day. ✌️

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