Seeing through the hype in 'record earnings' and 'record sales'

Posted Feb 5th 2008 4:15PM by Zac Bissonnette
Filed under: Amazon.com (AMZN), Columns

We can always expect companies to put their best foot forward in their press releases but, as investors, it's our job to see through the hype.

One common tactic that companies use to try to excite investors is the trumpeting of "record sales" or "record earnings."

Today for instance, pornography purveyor New Frontier Media (NASDAQ: NOOF) issued a press release reporting the company's third quarter earnings, blaring the headline "New Frontier Media Reports Strongest Revenue Quarter in Company History."

But here's the thing: investors generally look for year over year growth from the companies they own -- a growing company should be reporting "record" revenue with some frequency. It's the equivalent of a fifth grader bragging to his parents that his math class is "the hardest math class I've taken in my entire life." As it should be!

For sheer lightweight PR hoopla, it's hard to top Amazon.com's (NASDAQ: AMZN) annual process of reporting its strongest holiday sales in company history. They did it in 2005, 2006, and 2007. Record sales come with the territory of being a high-multiple growth stock, and investors should take the PR with a heap of salt.

Unfortunately, some writers feed into the hype with stories regurgitating Amazon's spin. But that doesn't mean you have to fall for it.

Bottom line: Look at the numbers yourself and evaluate them against expectations. And don't let a slick Madison Avenue headline trick you into thinking something amazing has happened.

Tags: AMZN, earnings hype, EarningsHype, NOOF

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Reader Comments (Page 1 of 1)

2-05-2008 @ 5:17PM

AngryJed said...

Exactly right - and I always wonder if they account for the complete loss of value to the dollar in those numbers as well

2-06-2008 @ 11:18AM

Michael Schneider said...

NOOF stock has been knocked down on bad earnings and selling by Steel Partners which had been trying to buy the company when it was doing pretty well. The stock moved up yesterday though probably more because the earnings were better than expected. NOOF was on the list of Weird Media stocks at http://www.Barrelomedia.com when it had good earnings and prospects looked good-- also a good dividend. The better than expected earnings at NOOF may better than expected results for Playboy this quarter (which is also thought to be set to report earnings a bit below last year in the current quarter). Of course, NOOF competes with Playboy so it could also go the other way but I wouldn't be surprised to see Playboy come in better than expected.