🧠 How To Decode Management’s Jargon
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Friends,
If you invest in individual stocks, we highly recommend you listen to the company’s conference calls.
Hearing management’s tone, reaction to questions, and overall demeanor is invaluable.
But there is one part of these calls that we can’t stand: the jargon.
Lots of management teams use innuendos and acronyms when discussing their company’s results. Understanding what’s actually being said can be challenging.
For instance, DataDog reported earnings last week. The cloud software company’s forecast was disappointing. The stock fell over 20% in response.
The main culprit: management said that large clients are “optimizing” their use of DataDog’s tools. Some version of that word (“optimize”) was used 40 times during the call.
It sounds like a good thing. But is it?
NO!
When you — as a customer — “optimize” a tool you already have, it means you’re trying to squeeze every ounce of usefulness out of it before paying more.
Think of it this way: during the Great Recession, Americans “optimized” their used cars like never before. That’s just a fancy way of saying they waited to replace their cars because they wanted to save money.
The same thing is happening with many software companies right now. Lots of customers are “optimizing” their spending. That’s causing DataDog’s growth to be much slower than has been the recent past.
Here are some other common terms you may hear on these calls (and what’s actually being said):
“Color” = To provide more details on a subject.
“Churn” = Customers who stopped buying from us.
“Double click” = Provide more details.
“Elongated Sales Cycle” = Demand is weak.
“Green Shoots” = We’ve invested a lot but have not seen much return yet.
“Inorganic growth” = We grew from mergers & acquisitions
“Investing in our people” = Employee costs are rising fast.
“Move the needle” = Increasing sales enough to change the growth rate.
“Low hanging fruit” = Easy opportunities for improvement.
“Land and expand” = A small initial sale that leads to larger opportunities.
“Investing in Price” = Competitive pressures forced us to lower prices.
“Organic growth” = Increasing sales of internally developed products.
“Softness” = Demand for our products & services is weak.
“Streamline” = We fire a bunch of employees.
“We’ll take this offline” = I haven’t scripted an answer to your question
We hope that decoding these terms will help you to read between the lines the next time you hear a management team talking in gibberish.
Wishing you investing success,
– Brian Feroldi, Brian Stoffel, & Brian Withers
P.S. If you have 30 seconds, we’d love your input on what financial concepts you want to learn. Let us know by taking this quick survey.
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