Before March 2000, in the bull market, whisper numbers were all the rage. In fact, these estimates became so popular for the outlandish pre- "tech bubble" gainers that Wall Street often notched real estimates lower than actual expectations just to be able to "beat the consensus." Today, earnings whispers are still used, but not as confidently as before. Let's talk about how you can find and use these numbers to your advantage to rake in some insane profits!
What Is an Earnings Whisper?
Let's start off by addressing what this term actually means. Earnings whispers, also called whisper numbers, are essentially adjusted earnings estimates from what investors think will happen in a company's quarterly earnings call. We all know how important earnings calls are for publicly traded companies, as they can drive a stock up or down by huge amounts if they come in above or below previous forecasts.
Most companies will announce two things in their earnings report, their earnings per share from the previous quarter, and their anticipated earnings for the next quarter and year in focus. Admitedly, future guidance has become more important than anything else in these economic times, but if earnings miss for the quarter by even a penny, you should not be surprised to see a stock's value fall double-digit percentages.
So basically, an earnings whisper is a collective sentiment, coming anywhere from an investment firm water cooler to a stock market bulletin board, that judges how a company is expected to report in that all important earnings call. If you can successfully predict a "beat" or a "miss," and buy / short accordingly … you can potentially lock in an immediate 10 %% 2B gain. Granted, sometimes this upside or downside expectation is actually built in to the share price already, but I find that there is a good chance that you'll see movement regardless.
So Where Can I Get a Whisper Number?
You'll hear debts about which website is the best, but there are essentially two competitors in the whisper number arena, WhisperNumber.com and EarningsWhispers.com. So what exactly is different about these two websites? Essentially, the numbers you will get are often going to be different by a cent or two, which can make a world of difference in the stock market. With both claiming an almost "insider knowledge" of the results, it can be tough grabbing an accurate estimation.
Starting with Whisper Number, they grab estimates from over 50,000 subscribers. One of the site's leaders, John Scerrr, says that he gets expectations "from individual investors, his software trolls message boards, press coverage, chat rooms, and takes into account the opinions of visitors coming to the site who can add their voice to data . "
From Earnings Whispers, editor Shannon Puls says that her site pulls information from over 150,000 subscribers. What's more, Puls notes that the site "cold calls analyzes, reads every earnings preview and published research reports, regularly checks in with regular traders, quoting analyst names and companies when possible 'for transparency.'"
So basically, both websites do essentially the same thing, but pull from different sources with each telling you they are the more reliable resource. What you can do is simply take both numbers into account through your research. There are as many examples of Earnings Whispers being more reliable after the call as there are of Whisper Number getting the green light, so you will need to judge for yourself.
A Quick Example
While you should not be relying on whispers as a one-stop solution for trading stocks, it is often a reliable measure of future trading action on a stock, and a powerful tool that all traders look toward. Just yesterday, May 08, NVidia (NYSE: NVDA) reported earnings after the market closed. The consensus earnings estimate from NVidia management called for $ 0.38 per share for the first quarter 2008, excluding stock-option expenses. However, the earnings whisper was for just $ 0.35 per share due to a supposedly weaknesses in the tech environment.
Long story short, earnings came in below NVidia's expectations … so the shares immediately dropped almost 9% in after hours trading. But when guidance was in line, it was understood that they had actually beat the whisper number by a cent after reporting first quarter results at $ 0.36 a share … and stocks traded back to about even (and were positive the next day). This is just one example of how an earnings whisper can sometimes be more important than a company's quarterly guidance.
Bottom Line: I am not recommending in the least that you turn to salaries whispers as your only source of information. It is important to keep a grip on what a company does, how they are doing it, and what kind of growth is at hand. However, if you are not up to par on these all important whisper numbers … you are going to be at a loss, and could potentially see your holdings move drastically one way or the other unexpectedly. So do your homework, and stay bullish on the net!