The Tyranny of the Earnings Press Release
One public-company focus of our general client work building strong multiples centers on what we call the “earnings materials and channel mix.” There’s what a company reports at earnings time; and then there’s how it packages and distributes that information. For decades, the press release format has served as the default standard for the latter activity. In 2024, it’s not at all clear why. Beyond the pressure of habit and entrenched wire-distribution platforms, the benefits of the traditional earnings press release for the average company have never been more limited.
We’ll leave it to others to delve into the history of the release format (kudos, Ivy Lee!) and its enduring utility. And to be clear, some of the utility - even in Sinter’s view - DOES endure.
The core elements of the release - headlines, subheads, a lede graph, and even the boilerplate - constitute excellent “information architecture.” When used well, they deliver critical information efficiently, an effort that has never mattered more now that almost all information is readily available anytime on any topic.
The Earnings Dilemma: Conflicting Goals
So what’s the problem, especially with regard to earnings? It comes down to the two most fundamental goals for any earnings cycle. The first, referenced above, is efficient delivery of critical information. The second goal is storytelling, which if you think about it, exists in tension with the first objective. (Yes, there’s a third objective: legal and regulatory compliance, but for the purposes of this post, that’s table stakes.) For a variety of reasons, the typical company earnings release no longer serves either of those goals well.
Types of Information in Earnings Reports (Bear With Us)
Earnings reports contain a mix of different types of information:
quantitative financial tables;
company-overall-, reporting-segment-, and line-item-specific qualitative/quantitative copy (e.g., “…quarterly EPS up 10% to $.42 YOY”);
mostly qualitative general commentary; and
visualizations of quantitative information (graphs/charts).
The press release format - though it has evolved - lends itself best only to information-type #2 - factoids mixing summary numbers with short, sharp characterization of those numbers.
Data Incompatibility
Consider: you don’t need a release format for financial tables, and there’s nothing intrinsic to the release format that makes those tables better - plus the 10K/10Q also has them.
Also: releases don’t - no matter what anyone else might claim - intrinsically lend themselves to good storytelling and/or explanations about a business, its markets and its strategy (i.e., information-type #3 above).
The format best suits a Dragnet-style approach to communications - short, succinct, clear, factual. It’s not good for abstraction, big ideas, or long-form discussion. It requires archaic, formal syntax, the use of the third person except within canned quotes that everyone knows aren’t actual quotes, and encourages the use of the passive voice.
Yes, thousands of companies use it for higher-level commentary. But just because you can fit more abstract remarks into a release doesn’t mean you should, or that it’s the best way to plainly articulate a company’s POV on its quarter or longer-term performance and operations.
This is partly why nearly every single earnings announcement also has a call/webcast. If releases were ideal for delivering higher-level context and conversational commentary, there would be fewer calls, or the calls would focus far more on QA and less on executive remarks.
Finally, data visualization also isn’t ideally suited to the release format. This is why the earnings slide deck has become a part of more and more company quarterly announcements.
The Unintentional Net Inefficiency of an Efficient Format
The net effect of this mismatch between format and information has been the metastization of earnings materials. The majority of companies not only issue a release and file a 10K/Q, they also have a call that uses a deck - and the call itself requires a script that ultimately forms part of a public transcript that includes the live QA.
So these days, it’s not unusual to go to an IR website and click through to a quarter’s reported performance and find 4-5 distinct files competing for attention (release, 10K/Q, transcript, deck, financial tables).
Even with the best pre-earnings prep and professionalized materials creation, there are slight qualitative differences across these formats - ideas that get emphasized in the call, but not the release - or visualized well in a deck, but not the call or a 10K/Q. In fact, companies often count on those differences, especially when addressing tricky topics.
This proliferation of materials actually isn’t that great for investors/analysts - especially humans, but also for the trading programs. The formats overlap too unpredictably. So, algorithms will read, rank and score some materials/data higher than others, de-prioritizing or cannibalizing key ideas. Humans will generally do the same, focusing on just the release, or the call, or the deck..
(Releases also get increasingly expensive to issue, the longer they get and the more that gets packed into them - a consideration for smaller-cap companies, if not larger ones.)
Given that the release cannot actually do the job of balancing the contradictory goals of earnings all that well, it’s counterproductive to use it - at least the way it’s generally used now, and especially when there’s a better approach.
The Shareholder Letter
A small but growing set of more innovative companies have embraced a newer format that does a better job of balancing earnings information types: the shareholder letter.
These companies range from small to mega cap, and all of them in various ways clearly understand the benefits of making the letter format the clear center to their earnings disclosures. These advantages include:
Clear, conversational and modern journalistic writing style;
Magazine-level optionality of layouts that can easily accommodate charts, graphs and tables in ways superior to those formats being displayed on their own; and
Organization that lends itself to storytelling and explanation of both specific line items and more abstract strategy - such that the letter copy can, in many cases, serve as a call script once it’s written.
Does Anyone Really Use A Letter Format?
You’ve heard of these companies. They include Netflix; Block; RH; Rivian; IAC and Zillow just to name a few across a range of multiples, sectors and business models.
While not all of these companies are outperforming the market at a given point in time, there is a general correlation over time between companies that use letters and better investor engagement/valuations. Leaving that correlation aside, there’s zero question that shareholder letters make it far easier for companies, whether big or small, to efficiently frame and contain both results and an explanation for results.
Finally, and as importantly for our purposes, the multi-media letter format also better supports digital and social media amplification. It’s easier to excerpt and repurpose for blogs and social feeds - in part because it’s more visually appealing and relatable.
You can serialize it into the current quarter, as needed, or use visuals as links to drive investors back to the letter and IR site itself. Basically, it’s higher-utility all across the board.
Note: It’s also generally true that a number of companies embracing this format are also taking the logical next step, which is to re-think quarterly reporting formats entirely - as our callout of Axios’ excellent piece in August makes clear.
The Proper Role for an Earnings Press Release Today
We take pains to tell clients - especially those unaware of the option of doing a letter - they don’t need to abandon the release format entirely, in part because the legacy release distribution mechanisms are still effective in making a piece of content findable.
But in this context, the major value of the release is as a discovery tool - not a narrative piece in itself. As such it’s an alert, vs. a “release” of “news.”
Usually, this modified release format is short, simple and super clear - it has a single headline, a lede graph, a link to the shareholder letter/IR page, and boilerplate as well as required safe-harbor language.
Apple understands the assignment. They use a version of this short-release format - and in a super-laudable dedication to efficiency, focus investors on its financial statements and its 10K/Q. They also benefit from a widely-understood business model, so don’t necessarily need a shareholder letter.
The lesson Apple offers: it doesn’t try to fit a square peg in a round hole, by cramming everything into a release. The alert they use is a teaser; the tables are for the quantitative information, and the filing is for the longer-form commentary. Their earnings mix doesn’t blur formats and self-compete.
There’s an opportunity here for hundreds of smaller-cap companies to improve efficiency and impact - and it starts with walking away from the tyranny of the earnings release.
