Themes To Watch This Coming Earnings Season

Earnings season is just round the corner and with so much uncertainty around the economy, this will be an interesting earnings season to say the least.

I find that earnings seasons always provide important insights to investors. This is especially so in today’s climate, when there is so much uncertainty over macroeconomic conditions and stock prices have fallen hard.

With this in mind, here are the key themes I’ll be keeping an eye out for during the upcoming earnings season which will start in a few weeks.

Spending trends

The Federal Reserve’s tightening of monetary policy will likely impact consumer spending and company budgets. I will be keeping an eye on managements’ commentary about the business environment that they are in and the spending trends that they are seeing.

In the first quarter of 2022, it was heartening to see mission-critical software companies continue to post excellent results amid the wider market slowing down. I’ll also be looking for other companies that can come out of this environment stronger than they were before.

If these companies can continue to buck the trend, it will be another sign of their resilience.

Stock-based compensation

Lower stock prices could result in more heavy dilution for companies that depend heavily on stock-based compensation. This is because such companies need to offer employees more shares to make up for the shortfall in stock prices to attract the best talent.

With some companies seeing up to an 80% drop in their stock prices, it will be interesting to watch the dilutive impact of stock-based compensation. While the true impact will likely only be felt much later in the future, I’ll be keeping an eye on managements’ commentary on this subject.

Leadership changes and employee turnover

DocuSign and Pinterest recently reported that their respective CEOs have stepped down from their roles. It is not uncommon to see leadership shuffles in times such as these.

In the coming earnings season, we should also get a better picture of what companies are doing about retaining employees and the employee turnover trends. Investors of companies who have seen the loss of key personnel should also hope to get clarity on the reasons for any C-suite shuffling.

Updates on cost-cutting initiatives

There has also been a host of companies that have tightened their belts for the year. Sea Ltd, Tesla, and Netflix have all announced layoffs. With interest rates rising and capital becoming more expensive, companies will need to be more prudent in their spending.

In the coming earnings reports, I’ll be looking for additional colour on the impact cost-cutting initiatives have on their businesses going forward and how the initiatives have panned out.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I have a vested interest in Docusign, Tesla, Netflix, and Sea Ltd. Holdings are subject to change at any time