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I think that's the point though. Every growth software company wanted to have a beat and raise quarter, so they would manage expectations down to be able to off
by _sword 7y ago
I think that's the point though. Every growth software company wanted to have a beat and raise quarter, so they would manage expectations down to be able to offer exactly that, often no matter the quality of the earnings. As a sell-side analyst, if you wanted access to value-add with opportunities with corporates where you could get paid (e.g. non-deal roadshows), or even potentially banking business, you would generally need to have a good relationship with the company. The more divisive analysts would generally restrict contentious calls to one or two names that would generate call flow.
A lot of sell-side research work that analysts are paid for also focuses on information outside of estimates such as brokering investor sentiment or offering more details on channel checks in addition to what was published.
- JackFr 7y agoThere was the whole era of “the whisper number” where analysts would publish one estimate and then feed journalists and certain customers another number. I specifically remember an analyst on CNBC literally say that he expected earnings on a company to come in ahead of his own estimate. Honestly, why is that number not your estimate then?
- _sword 7y agoWhisper numbers are still totally around, but as buy-side expectations in my experience. I'd often field calls around earnings from investors who were trying to understand what everyone else was expecting from earnings results. There would then be further debates about what numbers would be good enough, or what long-only investors were expecting vs. hedge funds.
- albertshin 7y agoI remember (and will try to find) this one instance a few years back where one of the large banks issued a price upgrade shortly before earnings. This brought up the consensus prior to the earnings announcement causing the company to miss/underperform consensus which CNBC and other public news outlets weren't afraid use as the headline grabber... The company management was pretty pissed, but it also shows how simple the public can be in interpreting the earnings miss/beat.
- o-__-o 7y agoI no longer trade during earnings because it’s effectively random for John Q Public. A company beats across all estimates (eps, total rev, next quarter guidance) but drops 6% because a random non-public metric (like same store comp sales, or new subscribers added) that not a single analyst talked about that quarter was missed.