O joy! O bliss! It's quarterly results time again, my most favourite time of the, er, quarter. Every day, there's another batch of headlines about some company that's - shock! - released its quarterly results. Always keeps me on the edge of my seat.
Once every three months, every publicly-listed company on the planet issues a report about how it's done - how much stuff did it sell, how much money did it make, how much money did it spend in the effort. It's riveting stuff really, and certainly makes a change from reading about dull things like technology breakthroughs, product releases and corporate goings-on.
Most respectable publications (and I am including ARN in this) consign quarterly results to "briefs" (single-paragraph factlets over in the margin) or incorporate them into bigger stories ("IBM released some new thingy, just days after posting a quarterly profit of three bazillion bucks"). This, of course, enhances quarterly results time for us enthusiasts, because we have to go digging. You won't find those bazillions on the front page, no-sir-ee.
There are five possible outcomes in an announcement of quarterly results: a) the company significantly fails to meet analysts' expectations; b) the company falls marginally short of analysts' expectations; c) the company meets analysts' expectations; d) the company marginally exceeds analysts' expectations; e) the company significantly exceeds analysts' expectations.
While I'm defining stuff, I'll share with you my personal definition of "news". News is something that is both interesting and unexpected. It sounds simple, but actually it's criminally circular - much debate revolves around the definition of "interesting".
I digress. Even presuming that they are interesting, most quarterly results reports fail to meet my criteria for consideration as "news" because they are not unexpected - they happen, whether you like it or not, every three months. The most not-unexpected of them are, of course, those in category c), wherein the company has met analysts' expectations. When was the last time you read a headline like "Microsoft chugging along nicely, thanks"? It doesn't happen.
Likewise, you're unlikely to see a story given over to a category d) report, such as "Microsoft chugging along very nicely indeed, thanks". A journo whom I respect once told me his definition of "news" was "something that somebody, somewhere, doesn't want printed". Category c) and d) stories don't scare anybody, so you are extremely unlikely to see one printed - ever. Mostly you'll read about a) and b) stories - if money is lost, it's news. The more, the newsier.
Category e) stories are a special case, because obviously the companies involved want them printed. It's their competitors who don't. A story like "Microsoft rakes in $20 billion on stronger-than-expected sales of Windows 2000" will likely strike fear into someone's heart, somewhere. Makes me shudder, and I just made it up.
However, a category e) story, such as "Amazon nets 12 bucks - first time in the black", might make the front page (if ever it happens) simply because it would restore faith in the potential of large-scale e-commerce to make enough money for a nice-ish lunch. All of these things are proportional.
Which brings me to the subject of "analyst's expectations". You might think that, given that every quarterly report is going to fall into one of the five categories above, papers could simply print a scoreboard rather than spilling excess ink. "Amazon - e; Sun - d; IBM - c; Apple - b; Microsoft - a" and so on. The problem is that the c-level is not the same for all companies, so it's not a fair comparison. Whether a company has done well or not, and how well it has done, is set by a fairly anonymous set of people who work in the financial business and advise investors. Some of them call themselves "technology specialists", but this only means they mostly follow tech companies - not that they know anything about tech. There are also expert analysts who follow medical companies, but I wouldn't want one of them performing surgery on me.
Yet what the analysts expect has an enormous bearing on how the results will be perceived - whether the story is an a) or a c), a b) or a d). Some companies now make "pre-announcements", in which they tell analysts in advance that they're going badly. Then the expectations are lower, the final story becomes a c) instead of an a), and thereby doesn't make the press. It's a neat trick, and worth watching for.
This is why quarterly results time is so much fun. I can follow the same companies, and read the same results, but I still have to wait for the analysts to tell me whether it's good or bad. The suspense is thrilling.Matthew JC. Powell has had apretty ordinary three months. Downgrade expectations email@example.com