4 Numbers To Pay Attention To In Earnings Reports, Other Than Revenue and EPS

By: Spencer Israel

We’re in the heart of the final earnings season of 2019, with names like Alphabet, Facebook, Apple, Alibaba, and Exxon Mobil all giving investors a peek into their third quarter performances this week.

When we talk about earnings, most attention is paid to two headline numbers: Earnings Per Share and Revenue. But while those may generally be considered the most important numbers in an earnings release, there are other metrics that investors watch closely. This can vary from industry to industry as well, as some metrics underscore the underlying economics of specific business models.

Here are four other numbers to keep an eye one during earnings season other than EPS and revenue.

Same-Store Sales

SSS is a key metric for retail companies. Also known as Comps (short for comparable sales), same-store sales measure the total year-over-year sales growth in stores that have been open at least a year.

This number is presented as a percentage—as in “Company ABC had same-store sales growth of 5% last quarter.” In other words, sales at Company ABC locations open at least one year grew 5% last quarter from the same quarter a year ago.

SSS is important because it tells investors how well a retailer’s existing operations are growing, and from this number we can also deduce how much of a company’s sales growth came from new locations.

Net Interest Margins

For financial companies, Net Interest Margins (NIM) is a critical number that tells us how much the firm earned from interest on loans compared to how much it paid out in interest on things like savings accounts.

Because many financial firms sell products that generate interest—such as mortgages—it’s crucial that this number is greater than zero. A negative NIM tells us that the firm lends more than it earns.

NIM is expressed as a percentage, as in “Company ABC had net interest margins of 3% last quarter.” In that example, Company ABC earned 3% more interest than it paid out.

Subscriber Growth

For companies relying on a subscription model, subscriber growth is probably the most important number for investors.

Stocks from companies that generate most—or all—of their revenue from subscriptions are highly sensitive to this number, as it essentially dictates how well the business is growing. For example, Netflix, StitchFix, and Spotify are three companies that earn the majority of revenue from paying subscribers, and all three report how many new subscribers they gained during the previous quarter.

If subscriber growth is slowing, that is seen as a major headwind.

Daily Active Users and Monthly Active Users

DAUs and MAUs are commonly reported by social media companies—think Facebook, Twitter, Snap, and Match. Because access to these services are free, the entire business model of these companies hinges on monetizing those users. Social media companies need to show that they are growing their user bases, which will in turn allow them to make more money on things like advertising.

For a social media company, DAUs and MAUs are the best way to measure engagement on their platforms. But this is not a standardized metric, meaning companies don’t have to report it and there is some discretion on how an “active user” can be defined.

Prior to 2015, for example, Facebook counted anybody who used their Facebook account to log in to any website—Facebook or otherwise—as an active user (though they’ve since changed that). Twitter on the other hand, has only counted people who log into Twitter.com or the Twitter app as active users.

Social media stocks are very sensitive to DAU and MAU growth. If year-over-year growth slows, that is a major red flag for investors.

The author is long Alphabet, Facebook, Apple, Alibaba, and Exxon Mobil in his 401(k).

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