In the 21st century, we’ve seen a democratization across the investing world. Even if you have just $100 in savings, you can easily put it to work in the stock market with zero fees.

Or, you can buy index funds, which are now available at low costs to any investor. The financial world has made great progress in the last few decades in bridging the gap between investors with huge pools of capital and the small-time individual. Fantastic news for us.

An underrated democratization that has occurred simultaneously with access and commission fees is the dissemination of financial information.

One previously inaccessible information set was conference calls. These calls between management and Wall Street analysts are now being transcribed by various internet platforms and contain a wealth of information. Small-time investors can use this information to make decisions about the stocks they own, information that was previously unavailable to them.

Conference call transcripts are a vital tool for modern fundamental investors. Today, we will learn:

• Where to find (and how to read) conference call transcripts
• Finding the “why” from the earnings report
• Don’t forget the questions and answers

Let’s dive in.

Where to find (and how to read) conference call transcripts

Investing conference calls are fairly self-explanatory. They are calls between executives at a company and Wall Street analysts. Executives will discuss business updates, give out financial guidance, and take questions from analysts who follow the stock.

There are a few common types of conference calls that get transcribed for Internet databases. Most frequently read are the quarterly conference calls, which are done in conjunction with quarterly earnings releases. Second, there are transcriptions from investment conferences that are put on by Wall Street banks. Third, there are annual general meetings and other regulatory/board of director-type transcripts.

You can find these conference call transcripts in a variety of places. Websites such as the Motley Fool will post some transcripts for popular stocks. The most reliable places to find transcripts are websites such as Quartr or Finchat.io. If none of these places work, a Google Search can help as well.

Sometimes, the companies will post the earnings call replay and transcript on their own investor relations website. The company we will be discussing today – Alphabet/Google – does this.

Reading transcripts seems pretty straightforward. However, there are a few tips and tricks I have learned over the years after reading thousands of these documents.

First, the beginning of the transcripts will always have a “safe harbor disclosure” that is general lawyer-speak. You can skip this section.

Then, the CEO and other executives will read from a script to discuss what the call is about. Sometimes, these can get highly repetitive. If you already have an understanding of the basics of the business and the key financial results from the earnings, you can skip this section. Management teams like to hear themselves talk and repeat themselves a lot.

When reading transcripts for stocks you follow, it can be helpful to highlight sections with facts and commentary you think are important. That way, you can easily find it later and come back to it for analysis. It is the needle in the haystack with all the repetitive commentary from management.

Another hack to save time is to use the keyword search to find topics you are interested in. Some platforms will have a tool for this, or you can use the Ctrl+F function on your keyboard. If you have limited time and want to see what a management team said about a certain item, the keyword search is a lifesaver when reading conference call transcripts.

Finding the “why” from the earnings report

Beginning investors should start to read the quarterly earnings reports for the stocks they follow. These reports have updated financial information, forward earnings guidance, and usually a bit of management commentary on the quarter.

Sometimes, an earnings report will show a changing development for a business. For example, in Alphabet’s latest report it highlighted that YouTube advertising revenue grew 13% year-over-year, a slowdown from 21% year-over-year growth in the prior quarter.

This slowdown was not explained in the earnings report. So, what do you do if you want to figure out why YouTube’s revenue growth was slower in Q2 compared to Q1? Head to the conference call transcript, of course.

If you keyword search ‘YouTube” you can find management’s explanation for this slowdown. It was due to a few factors including the first quarter having a leap day, an easier comparison to 2023 for the first quarter vs. the second quarter, and continued growth for YouTube’s ad-free subscription business.

From the transcript:

“Turning to our outlook for the business, with respect to Google Services. First, within Advertising, the strong performance of Search was broad-based across verticals. In YouTube, we are pleased with the growth in the quarter. We had healthy watchtime growth, continued to close the monetization gap in Shorts, and had continued momentum in Connected TV with brand benefiting in part from an ongoing shift in budgets from linear television to digital.

As we look forward to the third quarter, we will be lapping the increasing strength in advertising revenues in the second half of 2023, in part from APAC-based retailers.”

Any investor who is interested in Alphabet and its YouTube subsidiary can read this and understand why YouTube is still doing well but also why the revenue growth has slowed down.

Another example is Google Cloud. The segment posted strong growth in the second quarter with 29% year-over-year revenue growth and 10% operating margins. Again, you can find out the reason for this growth (spoiler alert: artificial intelligence) by reading the conference call transcript:

“In Q2, Cloud reached some major milestones. Quarterly revenues crossed the $10 billion mark for the first time, and at the same time passed the $1 billion mark in quarterly operating profit. Year to date, our AI Infrastructure and Generative AI Solutions for Cloud customers have already generated billions in revenues, and are being used by more than 2 million developers.”

Google Cloud is accelerating growth because of all the new AI tools it has built for customers. This may not be a surprise, but it is a clear explanation from management on why the segment is doing so well. Investors can learn this by reading Alphabet’s conference call transcript.

Conference call transcripts can help you take the “what” from the earnings release and have management explain to you why it happens.

Don’t forget the questions and answers

Lastly, we need to talk about the questions and answers (Q&A) section from these conference call transcripts. Generally, executives will allow Wall Street analysts to ask them questions about the quarter at the end of the conference call.

These can be useful for a few reasons.

Management teams like to highlight the positives of their business while ignoring any negatives. It is just human nature. Analysts will usually ask questions about any pressing issues about the business, which can be helpful to read about.

There are a few ways to analyze management’s answers when Wall Street asks questions. First, I like to look at whether management actually answers questions that Wall Street asks them. Sometimes, executives will shy away when asked about an underperforming asset, which can be a red flag that things are continuing to do poorly.

Second, investors should read through management’s explanation on a poor performing part of the business. They will tell you why things are happening and (hopefully) why they have made the decisions they did.

For example, Alphabet is facing a headwind as it has to spend a boatload on capital expenditures to build out infrastructure for its artificial intelligence products. If you read the earnings report, you would want an explanation for this growing spending.

Luckily, an analyst asked about this topic on the conference call:

“So it looks like, from the outside at least, that the hyperscaler industry going from kind of an underbuilt situation this time last year to better meeting the demand with capacity right now to potentially being overbuilt next year if these CapEx growth rates keep up. So do you think that’s a fair characterization? And how are we thinking about the return on invested capital with this AI CapEx cycle?”

The analyst is worried that Alphabet is overbuilding its computing capacity, which could lead to low returns on investment. There is a reason the analyst is worried about this: returns on invested capital (ROIC) are a key driver of stock returns over the long haul.

Here is how CEO Sundar Pichai responded to the question:

“Look, obviously, we are at an early stage of what I view as a very transformative area. And in technology, when you are going through these transitions, aggressively investing upfront in a defining category, particularly in an area, which in a leveraged way, cuts across all our core areas, our products, including Search, YouTube and Other Services as well as fuels growth in Cloud and supports the innovative long-term bets and Other Bets. It is definitely something that for us makes sense to lean in.

The one way I think about it is when you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here. Even in scenarios where if it turns out we are overinvesting, these are infrastructure which are widely useful for us, they have long useful lives, and we can apply it across and we can work through that.”

This is a clear answer from Alphabet’s CEO. He is saying they are going to be aggressive because of the vast opportunity in AI, but understands it is also risky to invest so much so quickly. However, he believes it is a bigger risk over the long-term to fall behind its AI competitors.

Regardless of your opinion on Alphabet’s business strategy, I like the answer from Pichai here. He answers the question clearly and tells investors why Alphabet is doing what it is doing. While you might think this is common, being fully honest and clear with investors is not something every company will do.

Investor Takeaway

As you can see, investors can gain a ton of value from reading conference call transcripts. You can hear management commentary from the horse’s mouth, see how they react to questions, and find answers to why things are happening with a business.

If you haven’t already, you should add conference call transcripts to your regular reading list to stay fully apprised of the stocks you own in your portfolio.