The IT person’s guide to quarterly earnings doublespeak

It’s mid-April, so the flood of earnings reports for the first quarter of 2007 looms. If your biggest vendors are public companies, you may care how they do. You may also care about the performance of your own company or other companies you’ve invested in.

Problem is, earnings season is a jargon-laden obfuscation fest. Companies try to smell like a rose even after they’ve stunk up the joint. Analysts try to spin and justify their big salaries. And the media always gets it wrong, dutifully reprinting the company press release and rehashing last quarter’s article.

So you’re on your own. Except that I’m going to help you, with this “Quick Guide to Earnings Gibberish for IT Professionals.”

Whisper number. This is the earnings or revenue number that everyone on Wall Street is expecting. Not what the company had forecast, but often higher, especially for buzzy companies such as Apple and Google. It’s like what your grandmother expects you to do.

Pre-announce. This is bad, really bad, like surrendering. If you really missed your numbers, you put out a press release early. This is like telling your girlfriend you cheated before her friends can tell her. Wall Street punishes pre-announcements mercilessly because investors hate surprises. AMD pre-announced this quarter.

GAAP vs. non-GAAP (“pro-forma”) net income. GAAP stands for “Generally Accepted Accounting Principles,” and if you report GAAP earnings, you may actually have “high quality earnings.” But many companies also report another, non-GAAP or “pro forma” number, by which they mean: “This is what our earnings would have been if we hadn’t fallen down that flight of stairs — it won’t happen again, you gotta believe us!’

Visibility. Wall Street already knows what numbers a company will report because they will probably have leaked out before the release date. What it really cares about, however, is the forecast for next quarter, or the “visibility” the company has into its future performance. Many companies have stopped providing forecasts in an effort to flee this quarterly puppet theatre. But you’ll still hear them using the V-word, so listen closely.

Accounting irregularities. See the “GAAP” entry above. Then run for the hills. It can be especially nasty with software companies because of the way they do their accounting. Dell is going through this.

Year-over-year increase. A nice press release figure, but fairly meaningless. What matters is a company’s current growth rate, not whether they managed to top last year’s number. This is like a kid emphasizing that he’s taller than last year before showing his report card.

Currency headwind. This is what happens when your overall sales grow but the dollar rises against foreign currencies, making your European and Asian sales less profitable in dollar terms. Of course, recently, the dollar has been dropping, turning this into a tailwind for U.S. tech companies with lots of overseas revenue.

Alpha. This is code on Wall Street for “We’re going to make a lot of money,” because we made smarter picks than the next guy. It’s just another Greek letter. Like the Hemi is just another engine.

So there you have it. Investing in individual companies is an insider’s game, just like going to the casino, one that we little people aren’t likely to win. But it can’t hurt to know the lingo.