Earnings Whisper ® Numbers are the market's true earnings expectation!
Around the same time, a study published in the Journal of Accounting & Economics by professors from Purdue and Indiana University cast a fresh light on the subject. The authors, Mark Bagnoli, Messod D. Beneish, and Susan G. Watts, defined whisper numbers as informal forecasts, derived from private information or market rumors. Their in-depth analysis, comparing 943 whisper numbers with consensus estimates and actual results, found whisper numbers to be more accurate and valuable in predicting future prices.
The origin and source of these whisper numbers, however, were always shrouded in mystery. The general assumption swinging between two poles – with some believing them to be leaked information from companies themselves and others seeing them as the culmination of message board chatter. As Earnings Whispers explained to Bloomberg in 1999, however, the whisper number is really just the analysts' true expectations.
During a 1999 Riksbank conference with Earnings Whispers in Stockholm, UBS Warburg analyst Per Affrell revealed the routine practice of analysts. He explained that analysts continuously update complex models for most companies based on data checks. However, they cannot feasibly issue a new report and publish new numbers with each data change. Yet, when clients call them up, analysts are more than willing to share their latest expectations. When these expectations diverge from the consensus, traders pass the numbers around, and soon enough, the rumor, or the whisper number, spreads.
Earnings Whispers, in its early days, exhausted all possible methods to acquire these whisper numbers, even sifting through message boards. Eventually, they found the most reliable method to be directly calling up the analysts a few weeks before a company's earnings release. Over time, this practice has evolved, adapting to the digitization of data. Now, Earnings Whispers often receives the same data that analysts put into their models. Yet, the primary objective remains the same - to capture the analysts' real expectations. In essence, Earnings Whispers has become the "analysts of analysts".
As the only entity collecting this unique and valuable information, Earnings Whispers has trademarked the term "Earnings Whisper". Over the past 25 years, there have been 117,000 Earnings Whisper ® numbers published and with this large sample size, it is much easier to claim whisper numbers to be more accurate and valuable than consensus estimates.
As of June 23, 2023, the Earnings Whisper ® number has been closer than the actual reported earnings number than the consensus estimate an astonishingly 70% of the time. Still, it is the market that determines the value and, the market’s reaction to the different sets of numbers makes it clear which is more valuable. Since August 7, 1998 stocks of companies that beat the Earnings Whisper number closed higher by an average of 1.8% and were higher 60.0% of the time, but those that beat the consensus estimate while missing the Earnings whisper closed lower 55% of the time and were down an average of 0.3% on the day. In other words, there is no statistical benefit to beating the consensus earnings estimate - only the Earnings Whisper.
Furthermore, the difference becomes even more significant in the subsequent days. This is seen in the Post-earnings Announcement Drift (PEAD) phenomenon, which is elaborated upon here.
Thus, it has become convincingly clear, the Earnings Whisper ® number is the market’s true earnings expectation.