How automated earnings stories may miss the news

Ben Ashwell of IR Magazine looks at how automated earnings stories don’t always represent a true picture of a company’s performance.

Ashwell writes, “These stories are less than 100 words in length and are intended as brief snapshots to be disseminated through a newswire. Gibbs explains that where these stories begin to go awry is when there’s a complicated company story. M&A transactions and non-Gaap figures are two of the biggest sources of friction.

“Industry observers say numerous companies, including Netflix and Under Armour, have faced situations where a tech-driven news service has produced a story in which the figures are correct but there is insufficient context to explain that they are due to unusual circumstances. Representatives from both companies declined to comment for this article.

“The impact of such reports can be felt particularly sharply by small caps. Telaria (formerly Tremor Video) is a small-cap US stock specializing in video monetization. In February 2016 the company had to restate part of its net and gross revenue. An AP story reported a 30 percent fall in revenue, but ‘it wasn’t an apples-to-apples comparison,’ says Andrew Posen, vice president and head of IR at Telaria. ‘The stock dropped by 15 percent. I had to spend a significant amount of time explaining to my board of directors and CEO what had happened.’ Posen adds that the AP story wasn’t incorrect – it just lacked the context of the restated revenue figures, compared with the previous quarter.”

Read more here.