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Feel free to do a deep dive on the meaning and nature of earnings estimates, and you'll find it's mostly just a service that exists because it gives the appeara
by Kranar 5y ago
Feel free to do a deep dive on the meaning and nature of earnings estimates, and you'll find it's mostly just a service that exists because it gives the appearance of legitimacy to various financial institutions. Earnings estimates do not come down from God and there's no one single earnings estimate either, different sites and sources will report different estimates. Typically it's just the average or the median of a bunch of guess work done by analysts across a bunch of different brokerages or financial institutions and they exist to give credibility to said institutions.
A basic quantitative analysis of earnings estimates reveals that they are not particularly accurate when compared to the earnings guidance given by the company itself, and in the rare cases where companies provide no guidance, estimates are almost worthless.
All this is to say don't confuse the term "Wall Street estimates" with what people who actually buy and sell stock estimate. The actual people who have skin in the game and face tangible consequences if they're wrong don't take these earnings estimates that seriously, and conversely the analysts who produce these estimates don't have much of any skin in the game themselves and suffer next to no consequences for being wrong.
- dylan604 5y agoThis is what I've never understood. These estimates are just that, estimates. They are guesses, potentially educated guesses based on some data, but guesses/hopes/prayers none the less. It's like sports teams and all of the talking heads giving their opinions on the upcoming matches. In sports, it's called betting. But in business, it's called investing. It's the same thing, only one is more widely accepted an legal.
- jliptzin 5y agoYea that’s why I don’t understand the big fuss surrounding sports gambling/online poker etc. There’s currently something called the options market, much larger than both those things combined, where people are betting one way or the other on minute differences in a company’s quarterly earnings reports. You want to ban online gambling? Ok fine, I can easily go bet my entire life savings on whether Facebook earnings will be 30 billion or 31 billion next quarter.
- dylan604 5y agoBut it's not even a difference of billions like 31 to 30. It's these numbers were like the 3rd digit after the decimal different. Sure, in these numbers that's still millions but only single digit millions. It's literally a rounding error depending on least significant digits. In some places, they only had 2 digits. To get to the offsets, they had to increase the accuracy. Literal rounding errors.
- parineum 5y ago> In sports, it's called betting. But in business, it's called investing. It's the same thing, only one is more widely accepted an legal. One incentivizes people to build iPhones and the other takes money from poor people.
- dylan604 5y agoThe poor people can also buy stocks in an attempt to "win big". It's just much easier to approach a bookie that doesn't care about status compared to a broker who wouldn't be so welcoming to certain clientele.
- blihp 5y agoThe markets reward predictable businesses and guidance often matters more than the current quarter, assuming management has any credibility. Whether that predictability is from the companies own guidance or analyst estimates[1] is fine. If quarter after quarter and year after year a company can't meet or beat (or switches from consistently beating to only consistently meeting), then the stock is often punished. If it misses the current quarter and guides down, the markets typically re-calibrates valuations downward which is what appears to be going on here. [1] For example, Apple used to play a sandbagging game with their guidance. After a few years most analysts caught on and if Apple didn't beat their numbers by a consistent amount, the stock would get hammered on earnings despite the fact that they beat guidance. When a company consistently sandbags (i.e. basically gives themselves an easy target to hit for the coming quarters/year), analyst estimates tend to matter more.
- ckardat123 5y agoCurious if there are any good, public datasets out there on company earnings guidance or earnings estimates. Is earnings guidance typically included within quarterly filings, or is it usually given on earnings calls?
- blihp 5y agoBoth. The earnings call is typically just a reading of the filing with a Q&A period at the end where the questions are at best minimally answered.